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Author: 


New  York  post 


Title: 


The  business  cycle 


Place: 


New  York 


Date: 


[1921] 


^^'  9^'y'O  I-  I  ^ 

MASTER   NEGATIVE   # 


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New  York  evening  post. 

The  business  cycle  ... 
evening  post,  cl921. 

32  p.   2SP. 


New  York,  New  York 


"The  'Business  cycle'  is  one  of  the  ...  series 
of  articles  which  appear  in  the  Evening  post  ..." 


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THE 


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BUSINESS  CYCLE 


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•         !••••  •«  •  ••^  ,•  • 

■••       ••        •        ••      •      •••# 


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•  •.     .      «       . 


The  "Busiuess  Cycle"  is  one  of  the  many 
valuable  series  ftf-  arlicl^s^  w^iicl^  Appear  in 
the  Evening  'i*ost  aiid  ''are  received  by  its 
regular  readers.  These  articJes  are  re- 
printed now  because  a  wide  demand  has 
exhausted  the  editions  of  the  Evening  Post 
containing  them. 


New  York  Evening  Post 

20  Vesey  Street 

New  York  Citv 


THE 


BUSINESS  CYCLE 


The  "Bjitlnem  Cycle"  is  one  of  the  many 
yaluable  series  of  articles  which  appear  in 
the  Evening  Post  and  are  received  by  its 
regular  readers.  These  articles  are  re- 
printed now  because  a  wide  demand  has 
CKhansted  the  editions  of  the  Evening  Po^t 
ffuntaining  them« 


New  York  Evening  Post 

20  Vcscy   Street 
New  York  City 

OOFY&IOBT.  1921.  N.Y.SVfiNIKa£HMT,  INC. 


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V. 


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THE'  BUSINESS^ CYCLE 


Prefatory  Note 


This  important  series  of  articles  on 
the  business  cycle  was  published  in 
the  Evenhig  Post  beginning  October 
17.  It  has  naturally  fallen  into  three 
parts  in  conformity  with  its  object. 
One  part  deals  with  the  theory  and 
principles  of  the  business  cycle  and 
includes  articles  by  such  well  known 
economists  as  Prof.  Wesley  Clair 
Mitchell,  author  of  "Business  Cycles"  ; 
Edmund  E.  Day,  professor  of  eco- 
nomics, School  of  Business  Adminis- 
tration of  Harvard  University;  Ed- 
win Walter  Kemmerer,  professor  of 
economics  and  finance  in  Princeton 
University;  M.  C.  Rorty,  vice-presi- 
dent of  the  Bell  Telephone  Securities 
Company  and  recently  chief  statisti- 
cian of  the  American  Telephone  and 
Telegraph  Company;  John  E.  Roven- 
sky,  vice-president  of  the  National 
Bank  of  Commerce  in  New  York,  and 
Leo  Wolman,  chief  of  the  reseai-ch 
department  of  the  Amalgamated 
Clothing  Workers  of  America. 

The  second  part  demonstrates  the 
practical  application  of  the  principles 
of  the  business  cycle  to  the  manage- 
ment of  business.  It  includes  articles 
by  Clarence  M.  Woolley,  president  of 
the  American  Radiator  Company, 
and  Mark  W.  Cresap,  of  Hart  Schaff- 
ner  and  Marx,  and  interviews  with  F. 
L.  Lamson,  treasurer  of  the  Norwood 
Tire  and  Rubber  Company ;  Henry  S. 
Dennison,  president  of  the  Dennison 
Manufacturing  Company;  E.  M. 
Herr,  president  of  the  Westinghouse 
Electric  and  Manufacturing  Com- 
pany; Theodore  T.  Malleson,  export 
manager  for  the  Royal  Typewriter 
Company;  Sara  A.  Lewisohn  of 
Adolph  Lewisohn  and  Sons,  and  the 
managing  executive  of  one  of  the 
largest  department  stores  in  New 
York,  and  an  officer  of  the  General 
Motors  Corporation. 

The  third  part  was  designed  to  in- 
dicate the  present  position  of  the 


country  in  the  business  cycle.  It  con- 
sists of  reports  by  bankers,  wholesale 
merchants,  and  retailers,  giving  the 
business  situation  in  their  sections 
and  the  outlook  for  the  future. 

The  three  parts  of  the  series  ran 
concurrently.  The  underlying  pur- 
pose of  the  series  has  been  to  show 
business  men  that  by  correct  eco- 
nomic thinking  and  an  intelligent  use 
of  statistical  material  collected  and 
placed  at  their  disposal  by  various 
Government  and  private  sources  they 
can  exercise  a  large  degree  of  control 
over  the  course  of  the  business  cycle 
by  forecasting  the  course  of  buslnoi»s. 

Prof.  Mitchell,  Prof.  Kemmerer, 
and  the  other  economists  show  that 
business  inevitably  follows  a  regular 
course  from  prosperity  through  crisis 
to  depression,  and  that  from  depres- 
sion come  revival  and  again  pros- 
perity. The  causes  leading  to  the 
different  phases  of  the  cycle  and  the 
inevitableness  of  the  progress  are 
clearly  explained.  How  a  wider  dif- 
fusion of  economic  knowledge  among 
the  business  community  and  a  con- 
firmed habit  of  correct  economic 
thinking  would  tend  to  lessen  the 
curves  of  the  business  cycle — to  make 
the  peaks  of  prosperity  less  high,  but, 
on  the  other  hand,  to  raise  the  level 
of  the  valley  of  depression — ^was 
tersely  put  by  Prof.  Kemmerer  when 
he  said,  **I']conomic  movements  that 
are  widely  anticipated  are  thereby 
either  prevented  from  taking  place  or 
modified  in  their  occurrence." 
,  But  these  statements  of  theory  and 
principle  would  have  been  of  little 
value  if  they  had  not  been  accom- 
panied by  the  interviews  with  busi- 
ness men,  showing  the  practical  ap- 
plication of  the  principles  to  the  man- 
agement of  business.  These  inter- 
views have  been  an  invaluablis  series 
of  lessons  to  the  business  community 
on  reading  the  signs  of  the  times.    ', 


w     ^--■■"      s..  -X    i,-y 


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2)  \13 


■* 


^^    ^v    ^^^  '  ^ 


THE   BUSINESS  CYCLE 


— iirr" 


CONTENTS 


•  •   ••«•--••   ••   • 


.. .  21 


A  Business  Policy  for  To-day 

by  MARK  W.  CRESAP. 

Bankers'  Aid  in  Stabilizing  Business 

by  EDWIN  WALTER  KEMMERER 14 

Bankers  Can  Check  Depressions 

by  EDWIN  WALTER  KEMMERER................. 18 

Business  at  Crest  and  Trough ..j^.-^  20 

Business  Cycle  Sure  Guide  to  Future 

by  WESLEY  CLAIR  MITCHELL .,...,..^v-..r....*    5 

Business  Needs  Right  Men  on  Job 

by  MATTHEW  C.  BRUSH .^-. ^  30 

Business  Revival  Expected  to  Gather  Momentum  in  Immediate  Future 

by  WESLEY  CLAIR  MITCHELL 7 

Charting  a  Big  Business  Through  a  Price  Decline,  An  Interview  with 
E.  M.  Herr 


by  FRED  B.  PITNEY. 

Control  of  Business  Fluctuation  a  Need, 


■ » . • . «• ■«  < 


>'•!•"»■■•  "•I 


26 
8 


Cycle  in  Industrial  Output  Revealed  by  Production  Records 

by  EDMUND  E.  DAY .,.., lo 

Effective  Means  of  Lessening  Severe  Business  Depression  Possible 

by  WESLEY  CLAIR  MITCHELL ^ . ..^, ,.,^^    8 

"Guessworkers"  Do  Not  Survive  Business  Crisis 

by  SAM  A.  LEWISOHN ••...:.._.  28 

Half  Century  of  American  Business  (Graph.) . •^^^•w*^.  5&6 

How  a  Big  Toy  Firm  Handled  Itself  in  Anxious  Times 

by  J.  LIONEL  COWEN .,^.-,-...,_^  29 

How  One  Exporter  Foresaw  Business  Decline  Abroad 

by  THEODORE  T.  MALLESON .v.....*.*--  25 

How  the  Business  Signals  Read  To-day  / 

Summary  of  a  Symposium  Covering  26  States...... «.vv*n*-»«:  31 

Labor  Experiences  "The  Cycle" 

by  LEO  WOLMAN .  io 

Lessons  Learned  by  Du  Pont  Co.  in  Recent  Slump 

An  Interview  by  FRED  B.  PITNEY •.-.-.-.-. . .  27 

Lessons  Learned ;  Business  Cycle  Guides  One  Firm  Through  Crisis 

by  CLARENCE  MOTT  WOOLLEY 17 

Running  a  Big  Retail  Store  as  Prices  Decline .-.-^.. .  22 

Summary  of  Symposium  on  Business  Conditions 31 

Things  Business  Should  Know 

by  JOHN  PALMER  GAVIT 12 

The  Business  Cycle  and  Everyman's  Job ig 

Uncertainty  Causes  Ups-and-Downs  of  Business  Cycle 

by  JOHN  E.  ROVENSKY 24 

•*We  Mustn't  Go  It  Blind  Any  More" 

by  JOHN  PALMER  GAVIT n 

**What  Shall  We  Do  Then?" 12 

.Wrong  Ideas  Must  Be  Liquidated 

by  M.  C.  RORTY jg 

'.        /■■■■■■"■:■■ 


•? 


VI 


\ 


\ 


THE   BUSINESS   CYCLE 


BaUllons  of    transactions    year    after 
year. 

What  Pig  Iron  Shows 
Ev«n  these  series,  however,  seldom 
throw  the  cyclical  factor  into  hii^ 
relief  when  taken  in  the  raw  state. 
The  most  striking  feature  of  a  chart 
showing  pig-iron  production  (see  page 
00)  in  the  United  States  is  the  rapid 
rate  of  growth  from  decade  to  decade. 
In  a  chart  of  American  prices  the  out- 
standing features  are  the  effects  of 
great  wars  and  the  long-period  swings 
In  the  purchasing  power  of  gold.  In 
a  chart  showing  the  value  of  the  cot- 
ton crop  the  effects  of  the  weather 
are  clearer  than  the  effects  of  pros- 
perity or  depression.  To  trace  the 
course  of  business  cycles  dearly  it  is 
necessary  to  set  aside  the  influence  of 
euch  other  factors  as  can  be  isolated 
—particularly  the  factor  cf  growth 
and  seasonal  fluctuations.  And  after 
that  has  been  done  it  is  best  to  trust 
no  single  index  of  business  activity, 
but  to  combine  several  of  the  most 
significant  indexes  into  a  single  series. 
How  the  effects  of  other  factors  can 
be  excluded  is  illustrated  by  the  two 
charts  of  wheat  and  pig-iron  produc- 
tion. Here  the  growth  factor  is  rep- 
resented by  a  straight  line  about  which 
the  yearly  production  oscillates.  The 
754,000,00.0  bushels  of  wheat  which  it 
la   estimated   are   harvesting    in    1921 


would  have  been  impossible  under  the 
best  weather  conditions  in  1890,  but  it 
is  somewhat  below  the  "normal"  ex- 
pectation for  this  year,  just  as  tho 
399,000,000  bushel  crop  of  1890  was 
somewhat  below  normal  for  that  year. 
So,  too  with  pig  iron,  which  has  a 
much  more  rapid  factor  of  growth. 
The  best  indication  of  activity  in  the 
iron  trade  is  given  by  comparing  the 
actual  output  of  the  current  year,  not 
with  the  output  of  any  previous  year 
but  with  the  output  indicated  for  the 
current  year  by  the  line  of  "secular 
trend."  These  deviations  of  the  ac- 
tual record  of  each  year  from  the 
normal  expectation  for  that  year  can 
readily  be  computed  for  various  sta- 
tistical series,  reduced  to  a  common 
denominator  by  comparison  with  their 
respective  "standard  durations,"  and 
then  combined  to  make  a  single  curve. 

Excluding  Seasonal  Fluctuations 

By  an  analogous  but  slightly  more 
elaborate  analysis  seaeonal  fluctuaiicns 
can  be  excluded.  Many  branches  cf 
business  are  regularly  more  active  in 
certain  months  than  in  others. 

The  average  magnitude  of  these 
swings  can  be  ascertained  if  one  has 
monthly  figures  covering  a  sufficient 
number  of  years.  Then  the  normal  ex- 
pectation for  any  month  is  shown,  not 
by   a    steadily    rising   line    of   secular 


trend,  but  by  a  wavy  line,  which  may 
be  higher  in  (say)  October  of  each 
year  than  in  the  following  December. 

These  methods  of  analyzing  business 
experience  have  been  developed  most 
fully  by  Prof.  Warren  M.  Persons  of 
the  Harvard  Committee  of  Economic 
Research.  By  applying  these  methods 
over  a  longer  period  of  time  than  that 
covered  by  the  Harvard  group,  Emer- 
son VV.  Axe  has  constructed  the  chart 
showing  "A  Half  Century  of  Ameri- 
can Bu.sine.ss,"  which  rum*  across  the 
top  of  this  page.  The  statistical  series 
used  by  Mr.  Axe  and  the  relative 
"weight"  allowed  to  each  aeries  in  ar- 
riving at  the  final  results  are  as  fol- 
lows; 

Weights. 

Outside  clearings  25 

I'ig-iron  production 20 

Hailroad  traflSc  16 

Failures 10 

Copper  production  6       , 

Cotton  consumption 10 

Coal  production 5 

Commodity  prices 10 

Total  weights 100 

Some  of  these  series  do  not  exttnd 
back  to  the  earlier  years  covered,  in- 
deed the  line  from  1877-1884  is  based 
on  pig-iron  production  alone:  and  it 
is  not  until  1903  that  all  eight  series 
are  available. 

What  the  Chart  Shows 
This   chart   is  a   graphic   summary 
of   the   cyclical   oscillations   of  Amer- 
ican   business    above    and    l)elow    the 
[normal     expectation     for     each     year 


A  Half  Century  of  American  Bnsiness — General   Business  Activity 

Compared  with  Estimated  Normal. 


a?HB^  BUSINESS  CYCLER}} 


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since  1877.  It  pictures  the  revival  of 
prosperity  that  followed  the  resump- 
tion of  specie  payments  and  the 
bumper  crops  of  1879,  the  prosperity 
of  the  early  eighties,  the  crisis  of  1884, 
tfie  i-evlval  of  1885-86,  the  boom  f 
15S89-90,  the  slight  share  of  the  United 
StHtes  in  the  crisis  of  1890,  the  revival 
that  followed  the  extraordinary  har- 
vest in  1891,  the  great  panic  of  1893, 
the  prolonged  hard  times  that  fol- 
lowed ( interrupted  by  the  brief  and 
p.artial  revival  of  1895),  the  return  of 
prosperity  that  began  in  1897,  our 
j>artial  share  in  the  European  crisis 
of  1900,  our  own  "rich   man's  panic" 


in  1903,  the  revival  that  started  in 
the  autumn  of  1904  and  grew  into  the 
boom  of  1906,  the  crisis  of  1907,  the 
rapid  revival  of  1908-9.  the  reaction 
in  1910-11,  the  improvement  in  1912 
the  return  of  dulness  in  1913  merging 
into  the  deep  depression  of  1914,  the 
upward  rush  to  a  new  peak  of  pros- 
perity in  1916,  the  diflicultit-s  of  main- 
taining business  at  this  peak  after  we 
eiitsred  the  war.  the  brief  depression 
tnat  followed  the  armistice,  the  new 
boom  that  surprised  us  in  1919,  the 
turn  of  the  tide  in  1920,  and  the  deep 
depression  of  1921 — a  trifle  deeper 
than  any  of  its  predecessors  shown 
by  the  chart. 


No  one  who  studies  this  chart  ^Wi 
a  realization  of  the  vast  mass  oi 
practical  experiences  which  it  sums  up 
year  by  year  can  doubt  that  business 
is  really  subject  to  cyclical  osciUa^ 
tions.  The  chart  gives  no  warrant  for 
thinking  of  the  business  cycle  as  a 
strictly  uniform  sequence  of  precisely 
the  same  phenomena.  But  it  does 
suggest  that  if  the  oscillations  of  the 
near  future  follow  the  precedents  of 
fifty  years  the  now  vacant  column  foe 
1922  will  be  filled  in  by  a  line  not  un- 
like the  lines  of  1879,  1885.  1897. 
1904-5,  or  1908-09.  Such  a  line  as  that 
of  1915  is  scarcely  to  be  «xpected>An(| 
i  scarcely-4jo  be-iiesired,  ^ 


Business  Revival  Expected  to  Gather 

Momentum  in  Immediate  Future 

Steps  Toward  Recovery  Are  Outlined 

r        By  Wesley  Clair  Mitchell 


Current  statistics  interpreted  in  the 
light  of  pa.st  experience  indicate  that 
American  business  is  now  in  the  early 
stages  of  recovery  from  a  year-long 
depression.  The  normal  expectation 
iji  that  such  a  revival  will  gradually 
gather  momentum  and  develop  into  a 


revival  to  find  its  general  charactens- 
tics  and  then  inquire  how  present 
conditions  differ  from  those  amid 
which  other  revivals  began. 

When  Hard  Times  Come 
A  period  of  hard  times  is  character- 
ized  by   ii  fall   of   prices   fo;-  commodl- 
tips,   securities,   and  labor;  wide.spread 
idleness     of     men     and     machines;     a 


period  of  full-blown  prospeiity.  Ho  hshrinkasp  in  both  family  and  business 
Uiiich  was  shown  by  the  first  arti<  le  demand  for  almo-sl  all  cla.Kse.s  of  goods: 
in  this  series. 

But  it  was  also  shown  that  no 


1901   -HOI    tin  ijoy-  tios  1904  ij9i    ijoa   1905  1910    1911   i9ta    1915   i9it  i^'s  191*.  1917  1918  1919    1920  192J  ijzz  iw*  mt 


two 
business  cycles  run  exactly  the  same 
course.  The  revivals  of  1879-80.  of 
1885,  of  1897,  of  1904-05.  and  of  1908- 
09  are  all  precedents  to  which  we  may 
appeal  in  judging  the  present  case; 
but  these  precedents  differ  in  im- 
portant respects.  The  rate  of  iminove- 
ment  was  much  fustei-  in  some  of 
these  instances  than  in  others.  While 
most  of  these  revivals  were  preludes 
to  business  booms,  the  jirosperity  that 
followed  the  revival  of  lltOS-OO  Avas 
neither  intense  nor  lonii  sustained. 
And  there  are  more  sliiking  cases  of 
disappointment:  the  Rood  times 
brought  back  by  the  revival  of  1S91 
were  cut  short  by  the  pani<  of  IS'.t:;, 
and  the  revival  of  1895  relapsed  miser- 
able into  renewed  depression. 

The  real  conclusion  to  be  drawn 
from  experience,  then,  is  that  each 
phase  of  each  business  cycle  has  its 
individual  idiosyncrasies  as  well  as  its- 
family  resemblances.  Tliat  conclusion 
estops  us. from  any  summary  aii)»li»i*- 
tion  of  past  precedents  to  the  present 
case.  But  it  does  not  estop  us  from 
an  analytic  use  of  the  lessons  of  ex- 
perience. For  most  of  the  idiosynt  ra- 
.sies  of  past  revivals,  booms,  crises, 
and  depressions  can  l)e  explained  hy 
careful  study  of  the  conditions  that 
preceded  or  accompanied  them.  Ac- 
cordingly, to  learn  all  that  we  can  from 
the  past  about  the  near  future  we 
must  analyze  the  process  of  business 


I  a  gradital  depletion  in  the  condition  of 
I  clothing,  house  furnishing.s,  and  much 
pquipment   used   in  business;  a    reduc- 
tion in  the  stocks  of  goods  carried  by 
merchants,  manufacturers,  and  dealens 
in  raw  materials:  a   pariuK  of  produc- 
tion costs  by  increa.sed  exertions  on  the 
part     of     management     and     labor;    a 
liquidation    of    business    debts    and    a 
writins   off  of   losses,  a   contraction   of 
bank    loans,    an    increase    of    bank    re- 
serves, and  a  decline  in  discount  rates. 
In    the   early    stages    of    depression 
these  conditions  work  cumulatively  to 
reduce   bu.siness  activity,     iiul  after  a 
l)eriod  thai    \arii's   in   lens'-'"   with   the 
dniaiion  and  chuiactei    of  the  |)ieced- 
ing    boom,  ceitalii    of  thos'->  conditions 
lead    to    a    sligiil    but    significant    in- 
cicase  in   the    volmne  of  Hide.     Shoes 
atid  suits,  house  furnishing'^,  and  busi- 
ness   accessories    gradually    wear   out 
beyond  the  ])ossi'>ility  of  repaii'.   These 
are    examples     ol'    a     wide    variety    of 
setni-durable    good:-    which    we    make 
last    longei-   in    hard  times   than   flush, 
but   which   we  have   to  ier>la.e  alter  a 
while,    however   Cionomical    our   mood. 
When    that    time    « omes,    the    retail 
stores   and   supply    house."     note     that 
business  is  picking   up  a  tiific.     Mean- 
while   the    re<luction    of    ntocks    in    the 
hands  of  de.ileis  has  gone  so  far  that 
merchants  cannot   longer  supply   cur- 
)ent  purchases  fiom  the  wares  on  their 
shelves,  but  mu.sl  place  hand-to-mouth 
orders  with  manufacturer.s.    The  man- 
ufacturers   in   turn    must   order   more 
materials  and  employ  more  men.    The 
increase   iu    wage   payments   gives   a 


new  fillip  to  consumers'  demand  and  so 
reinforces  the  movement.  Thus  begins 
an  increase  in  the  physical  volume  of 
trade,  at  fii-st  very  slight  and  growing" 
at  a  slov/  rate;  but  capable,  if  it  runs 
its  cumulative  course  unchecked  for  a 
few  months,  of  changing  the  face  of 
affairs. 

Certain  of  the  other  conditions 
Chirac terij?tic  of  depression  facilitate, 
the  incipient  revival.  The  liquidation 
of  old  debts  and  the  writing  off  of 
old  Josses  remove  financial  obstacles. 
The  paring  down  of  costs  enable«» 
men  to  make  moderate  profits  from 
selling  prices  lower  than  those  they 
coulil  have  accepted  before  the  crisis. 
The  high  reserve  ratios  and  the 
shrunken  loans  of  the  banks  make 
them  able  and  eager  to  provide  credit 
for  the  con.servative  expansion  of 
business,  and  the  low  rates  of  interest 
encourage  borrowing. 

Presently  prices  stiffen  under  the 
influence  of  recuperating  demand. 
Then  merchants  anticipating  a  rise 
begin  to  place  oiders  exceeding  their 
current  requirements.  When  manu- 
factuters  find  their  orders  for  future 
(irlivery  mounting  towards  satisfac- 
tory totals,  t"iey  contract  for  larger 
supplies  of  raw  materials  and  con- 
sider tlie  advisability  of  m:irking  up 
l>rices.  Confidence  incroa.«ef,  among 
ail  clas.ses,  security  prices  reflect  the 
prospect  of  better  profits,  construc- 
tion work  of  all  soits  is  added  to  tlie 
growing  demand,  and  the  revival 
passes  over  into  prospcrits'. 

Now,  this  is  a  generalized  sketch  of 
such  a  revival  as  has  just  started 
among  ns.  A  moderate  increase  of 
buying  is  reported  from  numerous 
sources;  unemployment  has  been  re- 
duced a  bit  more  than  the  seasonal 
trend  will  account  for;  wholesale 
prices  have  stiffened  in  many  lines, 
and  the  most  sensitive  index  numbers 
are  rising  slowly;  "sentiment"  is  less 
that  they  could  get  the  credit  they 
needed  under  crisis  conditions.  The 
device  of  issuing  clearing  house  loan 
certificates  was  an  Ineffective. measure 


I      .J- 


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i-we^  -  ^SfLii, — *'■* 


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THE    BUSINESS    CYOiIe 


'■if 


PeMknlsUc.  All  this  conforms  to  the 
reneral  rule  of  revivals.  But  what 
are  the  peculiar  circumstances  of  the 
time  that  wlU  give  this  movement  its 
apecial  features,  making  it  rapid  or 
v!^'«^****"°"«  or  feeble,  prolonged  or 
brief?  That  question  la  hard  to  an- 
ew because  many  of  the  data  on 
Which  an  intelligent  judgment  might 
be  based  are  not  yet  available.  Still 
weare  not  altogether  in  the  dark 

First,  the  batiking  situation  is  pe- 
culiar. The  depression  has  been  ex- 
ceedingly severe,  but  the  crisis  imme- 
diately preceding  it  was  very  mild  in 
comparison  with  American  precedents. 
?a->5®  ^®''*  °°  spectacular  failures  in 
1920  no  runs  on  great  banks,  no  re- 
strictions on  the  withdrawals  of  de- 
posits, no  moratoria.  no  closings  of 
stock    exchanges.       Embarrassed  con- 

«,T  ^.VtJ^°^  ^°^*^®^  to  so  into  bank. 
^         ruptcy  if  they  could  be  saved. 

While  the  number  of  failures  in- 
creased, it  did  not  reach  half  the  av- 
erage number  of  1913-15.  On  the  face 
or  the  statistical  record  there  are  few 
conspicuous  signs  of  th»  enormous 
■tress  to  which  the  finaiwl*'  machinery 
was  subjected. 

Of  course,  this  ability  of  the  new 
fcanking  organization  to  withstand  the 
•tress  is  most  reassuring.  But  the  re- 
Msurance  counts  more  when  we  are 
ttinking  of  the  next  crisis  than  when 
we  are  thinking  of  the  present  re- 
vival For  our  old  banking  system 
served  very  well  in  periods  like  the 
^!^^^}.-  ^^  *^®  liquidation  of  financial 
Obligations  was  destructively  violent  it 
was  at  l^t  thorough.  Weak  con- 
cerns died  promptly;  they  were  not 
f^I^t^  through  a  lingering  illness  in 
tue  hope  that  they  might  eventually 
recover.  ' 

The  present  period  of  liquidation  has 
certainly  been  long,  but  we  do  not 
know  whether  it  has  been  thorough. 
Only  time  can  teU  whether  the  method 
Of  panic  financiering"  which  we  have 
practiced  for  the  first  time  has  put  us 
to  as  good  a  position  to  recuperate  as 
the  more  drastic  methods  into  which 
we  vsed  to  be  forced  by  the  lack  of  a 


centralized  reserve.  Bank  loans  have 
Shrunk,  reserve  ratios  have  risen,  and 
discount  rates  have  declined,  but  the 
present  discount  rates  are  high  in 
comparison  with  those  which  pre- 
vailed, say.  in  the  summer  of  1908. 
And  there  may  be  still  a  large  number 
or  weak  concerns  on  the  verge  of  a 
final  collapse.  Probably  there  is  no 
one  man  in  the  country  who  really 
knows  just  how  thorough  the  liquida- 
tion has  been. 


Price  Decline  Uneven 

A  second  peculiarity  is  the  uneven- 
ness  of  the  violent  fall  in  prices  which 
has  characterized  the  depression.'  The 
prospects  of  a  revival  depend  in  large 
part  upon  such  an  adjustment  among 
the  prices  of  transportation,  labor, 
raw  materials,  ajid  finished  commodi- 
ties as  promises  at  least  moderate 
profit  margins  in  all  the  main  branches 
of  business. 

The  price  readjustments  made  dur- 
ing a  period  of  depression,  it  is  true, 
never    restore    quite    the  same  rela- 
tions among  different  classes  of  goods 
as  prevailed  in   the  preceding  period 
of  prosperity.    It  is  true  also  that  the 
comparisons   we   are   nowadays   mak- 
ing with   the   pre-war  prices  span   a 
long  period— usually   the   eight  years 
since    1913.     It   would  be    foolish    to 
expect  any  close  approach  to  the  pre- 
war alignment.    Yet  the  discrepancies 
revealed  by  every  exhibit  of  the  fig- 
ures raise  doubts  as  to  whether  the 
present  price  situation  is  even  mode- 
rately stable.    It   seems  probable  that 
further  readjustments  must  be  made. 
Once  more,  American'  revivals  Iiave 
often  been  prompted  by  a  keen  for- 
eign  demand    for   our   goods.       Such 
was   notably   the   case   in    1879,    1891 
and  1897.     We  can  expect  little  such 
outside   help  at  present.       Severe  as 
our  depression   has  been,  the    Lnited 
6>tates    is    in    a    far    more    fortunate 
condition  than  any  of  the  great  for- 
eign countries,  financially  and  indus- 


trially. Recuperation  in  this  country 
may  help  business  to  revive  in  taxi- 
rope;  but  a  lively  export  demand 
se<  ms  unlikely  to  come  to  our  aid. 
And  foregn  trade  has  become  a  more 
important  factor  in  American  busi- 
ne.ss  than  It  was  before  the  war. 

The  uncertain  political  factor  also 
bulks  uncommonly  large  at  present. 
In  some  measure  revival  waits  upon 
the  settlement  of  the  tax  problem, 
the  tariff  problem,  and  the  financial 
relations  between  the  Government 
and  t.ie  railways,  to  mention  only  the 
chief  issues  in  suspense. 

The  most  encouraging  of  the  pe- 
culiarities of  the  present  situation  is 
the  latent  demand  for  construction  of 
whi(.-h  We  have  been  talking  since  the 
armistice  was  signed,  but  which  has 
not  yet  materialized  to  any  large  de- 
?''^f-,  We  have  not  had  an  active 
building  year,  counting  construction 
in  physical  units  instend  of  dollars 
since  1916.  A  great  deal  of  building! 
painting,  road-making,  and  the  like 
needs  to  be  done,  and  once  business 
cond  tions  become  favorable  work 
should  begin  on  a  liberal  scale 

What  will  be  the  net  r^sultaijt  of  all 
these  conditions  upon  the  progress  of 
the  revival  is  not  clear.  If  the  finan- 
cial house  cleaning  has  not  been 
thorough  we  may  repeat  the  experi- 
ence  of  1892,  when  a  premising  eS- 
pan.sion  of  business  wa«  checked  by 
a  sudden  renewal  of  suspended  liqui- 
dation  If  the  price  readjustments 
are  not  even  enough  to  enable  most 
industries  to  share  in  the  revival  we 
may  repeat  the  disappointment  of  1895. 
But  It  seems  probable  that  neither  of 
these   dangers   will   become   disasters. 

i'^r.  ?I  ^°uf '^."  ^''^^e-  we  can  attain  a 
considerable  increase  of  attivity  with 
exports  at  their  present  level  The 
political  problems  must  rea<-h  solutions 
of  some  sort  before  long,  and  the  solu- 
tions are  not  likely  to  he  as  bad  as 
the  present  uncertainties. 

All  in  all,  then,  the  chances  seem  to 
favor  the  further  progress  of  the  re- 
vival in  the  immediate  future.  But 
this  progress  is  likely  to  be  slow  at 
least  for  some  months  to  come 


^  J'  ^         October  19 

Effective  Means  of  Lessening 

Severe  Business  Depression  Possibl 

Control  of  Business  Fluctuation  a  Need 


By  Wesley  Clair  Mitchell 

The  depression  from  which  we  are 
tieginning  to  emerge  has  had  one  most 
hopeful  feature — the  development  of  a 
constructive  Interest  in  the  question 
Whether  such  periods  cannot  be  pre- 
vented from  recurring  in  the  future, 
Or  at  least  be  rendered  less  severe. 

The  long  history  of  business  cycles, 
rouirhly  one  century  in  the  United 
States  and  two  centuries  in  England, 
Aoea  not  prove  that  the  problem  of 


/ 


control  is  hopeless.  On  the  contrary, 
this  history  supports  the  belief  that 
carefully  devised  measures  taken  in 
season  may  accomplish  substantial  re- 
tnUs.  Indeed,  substantial  results  have 
already  been  achieved  in  controlling 
one  phase  of  the  business  cycle. 

Crises  in  England  formerly  grew 
into  panics.  But  their  centralized 
banking  system  enabled  the  Rngllsh 
to  develop  a  plan  of  "panic  financier- 
ing which  has  proved  effective  m 
every  crisis  since  1866.  The  vital 
feature  of  this  plan  Is  giving  practical 
aaaurance  that  every  business  enter- 


z' 


prist,   not  actually  insolvent  can,  by 
paying  a  stiff  rate  of  interest,  obtain 

♦Z^"'*  '2.^"^  ^°  meet  its  maturing  liabUi- 
tles.  This  assurance  suffk-ed  to  pre- 
vent the  spread  of  panicky  fears 
among  business  men,  however  dark 
the  prospect  in  other  respects.  A 
mark,Mi  change  -.  the  character  of  ^ 
British  business  cycles  was  produced 
by  this  new  policy.  Crises  lost  much 
of  tneir  dramaOc  intensltv,  and  the 
subsectuent  depression  bi^e  the 
matter  of  chief  concern. 

In  this  country  the  organization  of 
the  banking  system  long  made  It  Im- 
possible to  assure  solvent   borrowers 


4«^ 


,► 


/       # 


»i         h 


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<  n  > 


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THE    BU8INESS    CYCLE 


tl 


In  comparison  with  the  siupenslon  of 
the  law  limiting  the  "unsecured"  cir- 
culation of  the  Bank  of  England. 
Consequently,  we  had  real  panics  In 
1873,  189.^,  and  1907.  But  the  estab- 
lishment of  the  Federal  Reserve  Sys- 
tran in  1914  put  American  banks  in  a 
position  to  help  solvent  yet  embar- 
rassed business  liouses  as  effectively 
as  the  English  banks  help  their  cli- 
ents. Hence  our  crisis  in  1920  was 
much  more  like  the  crisis  of  1907  in 
England  than  like  the  crisis  of  1907  in 
this  country.  Our  first  application  of 
this  plan  of  panic  preveation  may 
prove  to  be  less  skilful  in  some  de- 
tails .^han  British  piactices  based  on 
half  a  century  of  experience;  but  if 
we  have  made  mistakes,  they  are  mis- 
takes by  which  we  shall  profit  on  the 
next  occasion. 

We  have  learned,  then,  how  to  miti- 
gate the  violence  of  crises.  The  next 
step  is  to  devise  methods  of  mitigating 
the  severity  of  depressions.  Several 
such  methods  have  been  proposed. 
Though  not  yet  tried  on  a  large  scale, 
some  of  the  proposals  rest  on  a  care- 
ful study  of  experience  and  merit 
thorough  consideration. 

Concerning  one  line  of  action  there 
is  no  room  for  doubt.  The  more  men 
of  affairs  understand  the  cyclical  fac- 
tor in  business  activity  the  more  they 
plan  to  take  advantage  of  the  oppor- 
tunities it  presents  for  gain  and  to 
avoid  the  losses  it  threatens,  and  the 
better  the  data  at  their  disposal  for 
judging  business  prospects  the  less 
violent  will  oscillations  become.  When 
a  future  danger  is  so  clearly  perceived 
that  every  one  prepares  to  meet  it, 
that  danger  seldom  proves  serious. 

A  notable  illustration  is  afforded  by 
the  extraordinary  fall  of  prices  in  1865. 
Every  one  expected  that  when  the 
Confederacy  collapsed  the  credit  of  the 
Federal  Government  would  improve, 
that  the  United  States  notes  which 
were  the  standard  money  of  the  day 
would  rise  in  value,  and  that  prices 
would  tumble.  Of  course  tr.is  antici- 
pated fall  of  prices  was  a  grave  dan- 
ger against  which  every  business  had 
to  provide.  Nearly  all  business  men 
made  such  provision.  The  anticipated 
fall  began  In  January,  1865,  and  it 
proved  more  violent  than  any  pre- 
vious decline.  Yet  the  fall  of  prices 
passed  off  without  producing  a  severe 
financial  stringency  or  a  long  depres- 
sion. No  troubles  occurred  compar- 
able with  those  which  accompanied  the| 
corresponding  drop  of  prices  last  year, 
although  the  banking  system  was  by 
no  means  so  well  organized  to  with- 
stand a  strain  in  1865  as  it  was  in  1920. 
Every  measure  which  aid:;  the  busi- 
ness public  to  foresee  coming  dangers, 
as  they  did  in  1865,  will  prove  help- 
ful. In  particular  the  statistical  data 
which  summarize  current  conditions 
should  be,  and  can  be,  rendered  far 
more  useful  than  they  are  at  present. 
Gaps  in  our  knowledge  should  be 
filled  in  by  compiling  fuller  statistics 
of  stQcks  of  goods  on  hand  and  on 
order,  of  manufacturing  output,  of 
construction,  of  numbers  of  men  at 
work  part  time,  full  time,  and  over- 
time, and  of  their  earnings,  of  the 
leading  factors  affecting  cost  of  pro- 
duction and  fiuetuatlons  in  demand. 
Not  less  important  is  the  effort  to 
make  the  sometimes  bewildering  array 
of  figures  more  intelligible  and  more 
significant.     Finally,  these  more  com- 


plete data  in  more  intelligible  form 
should  be  made  readily  accessible  to 
all  men  minded  to  use  them.  Hap- 
pily, there  are  many  active  workers 
In  this  field — Government  agencies,  or 
which  the  Department  of  Commerce 
is  especially  progressive  at  present, 
business  associations,  scientific  so- 
cieties, forecasting  agencies,  statis- 
tical departments  in  corporations, 
commercial  periodicals,  newspapers, 
and  individual  statisticians.  We  can 
count  upon  a  gradual  improvement 
both  in  the  data  and  in  the  use  made 
of  them. 

A  second  proposal  is  the  long-range 
planning  of  public  works,  municipal, 
State,  and  Federal.  Much  work  of  thig 
sort,  it  is  held  by  competent  judges, 
can  be  accelerated  for  a  year  or  two 
or  postponed  for  a  similar  period  K'ith- 
out  serious  detriment  to  publl?  in- 
terests. By  systematic  planning  gov- 
ernments might  diminish  the  amount 
of  work  they  put  to  contract  in  years 
of  great  activity  and  increase  the  em- 
ployment they  provide  for  labor  and 
capital  in  dull  years,  thus  reducing  the 
intensity  of  both  boom  and  depression. 
Besides  Its  other  advantages,  this  plan 
has  financial  promise,  since  the  cost  of 
construction  work  is  subject  to  a  wide 
swing  between  the  crest  of  prosperity 
and  the  trough  of  depression.  Esti- 
mates made  in  this  country  and  in 
England  agree  in  indicating  that  the 
amount  of  work  adapted  to  sdlocation 
In  this  way  runs  high  In  the  millions. 
It  is  obvious  that  every  dollar  paid 
out  in  hard  times  would  giv.-«  rise  to 
demands  for  goods  on  the  par'  of  con- 
tractors and  their  employees.  This 
plan  is  by  way  of  being  put  into  opera- 
tion on  a  small  scale.  In  July  1917, 
Pennsylvania  created  an  Emergency 
Public  Works  Commission  to  provide 
for  the  expansion  of  public  works 
during  periods  of  unusual  unemploy- 
ment. California  has  enacted  a  similar 
law  this  year.  Both  experiments 
should  be  followed  with  attention. 

The  Wisconsin  Legislature  has  be- 
fore it  another  plan — the  Ruber  un- 
e?  iployment  prevention  bill.  The 
theory  of  this  bill  is  that  the  cost  of 
unemployment  should  br-  treated  as  a 
fixed  charge  upon  industry',  and  that 
if  manufacturing  plants  which  show 
wide  fiuctuations  in  the  number  of 
men  on  their  payrolls  are  forced  to 
pay  higher  insurance  premiums  than 
the  plants  with  steadier  records  they 
will  soon  devise  methods  of  stabilizing 
th"ir  working  forces.  Tliis  theory  is 
supported  by  the  effects  of  k'gi«^lation 
compelliner  employees  to  carry  indu.s- 
trial  accid'.  nt  insurance  —  legislation 
which  has  put  a  premium  upon  acci- 
dent prevention  and,  it  is  claimed,  re- 
duced the  cost  of  accident.s  to  em- 
ployers. The  Hubor  bili  creates  a 
mutual  Insurance  company  which  all 
manufacturing  establishments  in  the 
State  must  .toin,  and  to  which  they 
will  pay  premiums  varying  with  their 
•inemployment  rates.  The  insurance 
company  is  to  be  managed  by  the 
pinployers,  under  rules  approved  by 
the  State  Industrial  Commission.  To 
be  eligible  for  compensation  for  un- 
employment an  employee  must  have 
worked  at  least  half  of  the  preceding 
year  within  the  State  and  must  have 
Vieen  laid  off  by  his  emoloyer  for  no 
fault  of  his  own.  The  rate  of  com- 
pensation is  $1.50  a  day  for  adults 
"nd  75  rents  for  workers  under  nine- 
teen  years  of    a«e.     The     maximum 


period  for  which  unemployment  com- 
pensation can  be  drawn,  is  six  weeks 
for  the  first  three  years  of  the  act's 
operation  and  thirteen  weeks  there- 
after. If  this  bill  is  passed  by  th« 
\Msconsin  Legislature  it  will  provide 
us  with  another  significant  experiment. 
Meanwhile  certain  corporations  have 
initiated  schemes  of  insuring  their  em- 
ployees and  stockholders  against  the 
effects  of  depression.  ror  example 
peering.  AlUliken  &  Co.  set  aside  tw«i 
sinking  funds  to  gxiarantee  a  minimum 
r^u®  <>^_ret"rn  to  both  capital  and 
labor.  Operatives  are  paid  current 
wages  and  investors  are  allowed  6  per 
cent  interest  on  their  capital.  When 
current  Income  exceeds,  what  is  neces- 
sary to  meet  these  charges.  15  per  cent 
of  the  excess  earnings  is  put  !nto  the 
sinking  fund  for  capital  and  15  per 
cent  into  the  unemployment  guarantee 
rund.  If  any  profits  remain  after  the 
sinking  funds  have  been  provided  for 
the  surplus  is  shared  equa'.ly  between 
capital  and  labor.  The  capital  sinking 
fund  Is  drawn  upon  to  make  up  anv 
deficits  below  the  6  per  cent  interest 
late  In  lean  years.  The  unemployment 
guarantee  fund  Is  used  to  provide  half 
pay  for  the  operatives  during  periods 
of  unemployment.  A  somewhat  simi- 
lar scheme  has  been  adopted  by  the 
Dennison  Manufacturing  Company 
and  another  method  of  attaining  the 
same  end  Is  being  tried  by  the  gar- 
ment manufacturers  in  Cleveland. 
The  latter  employers  agree  to  provide 
at    least    twenty   weeks     of    full-time 

provide  this  mucn  work  they  agree  to 
pay  two-thirds  of  the  wages  that 
would  have  been  earned  in  the  period 
of  Idleness,  with  the  proviso  that  their 
payments  for  time  lost  shall  not  ex- 
ceed 7%  per  cent  of  the  payroU.  This 
plan  obviously  offers  a  strong  finan- 
cial incentive  to  keep  the  workers  em- 
ployed. 

Besides  these  direct  schemes  for  re- 
ducing the  extent  or  mitigating  th« 
hardships  of  unemployment,  varioua 
monetary  and  banking  reforms  are  ad- 
vocated to  reduce  the  violence  of  the 
cyclical  oscillations  to  which  business 
^%  "ow  subject— further  centralization 
of  the  banking  system,  stabilizing  the 
dollar,  raising  Interest  rates  earlier  or 
more  rapidly  in  periods  of  prosperltv 
and  the  like.  Into  the  intricate  ar- 
guments for  these  proposals  it  Is  im- 
possible to  go  here.  But  one  point 
should  be  emphasized.  Nearly  all  the 
well  considered  schemes  for  control- 
ling the  business  cycle,  whatever  their 
line  of  attack  on  the  problem,  agree 
m  thus  feature— that  the  remedy  is  to 
be  .sought  by  shifting  part  of  the  ex- 
cess of  the  "boom"  Into  the  period  of 
depression.  It  follows  that  the  beat 
time  for  effective  prevenUve  action 
comes  before  activity  has  reached  that 
wasteful  Intensity  which  produces  busi- 
ness stresses  and  brings  on  a  crisis. 
And  the  best  time  to  formulate  a  wise 
preventive  policy  is  a  time  like  the 
present,  when  the  ills  of  depression 
are  fresh  In  mind  and  when  the  prob- 
lem can  be  studied  with  the  necessary 
care. 

This  consideration  makes  especially 
welcome  the  report  that  the  Presi- 
dent's conference  on  unemployment 
has  ap^  -ted  a  special  committee  to 
canva  merits  of  the  various  pro- 

posal' leventing  or  mitigating  fu- 

ture periods  of  business  prostration. 


-Jfcp  .■ 


N. 


I>     I    »» 


^ 


"'k  r-,-^  6i\  *':^^5^^iiStess-'^icYaLB-4 


\ 


:4 


^  .     .   IDciober'2a 

Cycle  in  Industrial  Output 

Revealed  by  Production  Records 

Extraordinary  Fluctuations  Due  to  Accidental  Tempor- 
ary Causes  Not  Important 


By  Edmund  E.  Day 

Prof««ior    of    EconomicF.    School    of    Business 
Adminuistration   of   Harvard    University 

Business  men  need  no  reminder  of 
the  prevalence  of  fluctuations  in  in- 
dustrial output.  Recently  radical  cur- 
tailment has  been  the  general  order  ot 
the  day.  Employees  have  been  placed 
on  abbreviated  schedules  when  not 
actually  discharged ;  plants  have  been 
operated  on  part  time  when  not  com- 
pletly  closed.  Output  has  been  at  a 
minimum.  Yet  as  i-ecently  as  the  win- 
ter of  1919-20  opposite  conditions  pre- 
vailed. Manufacturers  were  then  em- 
ploying every  available  means  to  in- 
crease production.  Workmen  were 
hired  overtime  to  tend  machinery  driv- 
en at  top  speed.  Production  was  at  a 
maximum. 
'  Though  variations  of  this  sort  form 
part  of  the  universal  experience  of 
modern  business  enterprise,  their  na- 
ture and  significance  are  rarely  un- 
derstood. Fundamentally,  fluctuations 
of  industrial  output  are  an  integral 
part  of  the  business  « ycle.  Bu.si- 
ness  conditions  at  one  stage  of  the 
cycle  stimulate,  at  another  stage 
enervate,  efforts  to  increase  produc- 
tion. The  ups  and  downs  of  indus- 
trial output  are  essentially  cyclical. 

The  character  of  this  cycle  may  be 
observed  in  the  production  records  of 
any  Industry  for  which  continuous 
data  are  at  hand.  In  the  United 
states  the  iron  and  steel  trade  pro- 
vides .lust  such  a  record.  In  the 
accompanying  diagram  on  another 
page  the  monthly  production  of  pig 
iron  is  shown  graphicallv  for  the 
eighteen-year  period  from  January, 
1904.  to  September.  1921.     (Chart  1\ 

Examination  of  the  graph  disclo.ses 
four  distinct  varieties  of  movement: 
(1)  Sporadic  disturbances,  as  in  Jan- 
uary-February, 1918.  and  October- 
November,  1919:  (2)  a  general  up- 
ward trend  running  through  the  en- 
tire period;  (3)  a  typical  seasonal  va- 
riation, under  which  tlie  production 
of  one  month — c.  g..  October— tends 
■  to  be  greater  than  that  of  another 
months— €.  g..  July:  (4)  a  cyclical 
movement,  showing  now  a  crest,  now 
a  trough,  in  aggregate  production 
Within  the  industry. 

Erratic  Movemenls  Unimportant 

In  the  study  of  the  business  cycle 
erratic  movements  may  be  dismissed 
with  little  comment.  It  is  enough  to 
know,  for  example,  that  the  heavy 
decline  in  pig  iron  production  in  Jan- 
uary-February, 1918,  was  the  direct 
consequence    of     the     order     of    the 


United  States  Fuel  Administrator  clos- 
ing for  thirteen  working  days  dur- 
ing these  two  months  in  States  east 
of  the  Mississippi  all  industrial  plants 
not  at  work  on  Government  contracts. 
TWe  consequent  sudden  drop  in  pig 
iron  production  was  merely  a  pau.se 
in  the  course  of  the  cycle.  Apparently 
it  had  no  decisive  influence.  The 
same  was  true  of  the  precipitous  fall 
of  production  on  account  of  the  steel 
strike  in  October  and  November,  1919. 
At  the  time  of  their  occurrence  these 
fortuitous  disturbances  may  entirely 
conceal  the  true  course  of  the  cycle. 
In  retrospect  they  appear  as  nothing 
more  than  interruptions  of  the  under- 
lying cyclical  movement  of  produc- 
tion. 

The  general  trend  disclosed  by  the 
graph  reflects  the  normal  growth  of 
the  industry  from  1904  to  date.  This 
normal  growth  justifies  the  expecta- 
tion of  a  substantially  larger  output 
in  1921  than  in  1014.  Another  indus- 
try might  exhibit  an  entirely  differe^nt 
long-time  tendency.  Thus  the  pro- 
duction of  beehive  coke  shows  a  per- 
sistent downward  movement  since 
1909,  the  result  ol  competition  from 
by-jprodurt  ovens.  Fluctuations  in  the 
output  of  any  industry  occur  around 
the  level  determined  by  thL*  prevailing 
trend.  This  may  be  upward  or  down- 
ward, or  of  no  discernible  inclination 
but  the  possibility  of  long-time  ten- 
dencies must  he  recognized  and  the 
effect  of  persistent  growth  or  decline 
allowed  for  in  the  interpretation  of 
current  recoi-d?  of  production. 

Seasonal  vaiiation  apjiears  in  the 
characteristic  differences  of  output 
for  different  months  of  the  year. 
Thus  typically.  .Maich  shows  much 
greater  pig-iron  production  than  Feb- 
ruary. In  part,  this  divergence  is 
nominal,  and  arises  not  from  a  f  hango 
in  the  activity  of  the  trade  but  from 
the  larger  number  of  working  da\s  in 
March.  Beyond  this  influence  of  tiie 
calendar,  however,  lies  a  leal  season- 
al movement  of  trade  activity.  Spring 
and  fall  in  the  iron  and  steel  indus- 
try show  greater  production  than  win- 
ter and  .summer.  Seasonal  variation 
thus  accounts  for  some  of  the  lesser 
movements  appearinj;-  in  the  chart  of 
pig-iron  production. 

Existence   of  the  Cycle 

When  all  necessary  allowances  have 
been  made  for  fortuitous  disturbances, 
long-time  tendencie.s-,  and  character- 
istic .seasonal  variations,  there  remains 
a  strong  wave-like  movement  in  the 
production  of  pig  iron  from  1904  to 
date.  The  chart  serves  to  throw  this 
movement  into  bold  relief.  Even  a 
cursory  study  of  the  records  affords 
convincing  proof  of  the  existence  of 


a  (.ycle  of  production  in  the  iron  and 
steel  trade. 

The  cycle  is  not  peculiar  to  this  in- 
dustry. True,  it  is  more  etisiiy  observed 
In  the  case  of  pig  iron  production, 
partly  because  of  the  nature  of  the 
trade,  partly  because  of  the  excellence 
of  the  statistical  record  But  similar 
fluctuations  appear  in  the  records  of 
other  fundamental  industries  wherever 
the  data  are  available.  Thue  the 
volume  of  cotton  manufacture  is  rep- 
resented since  1912  by  raw  cotton  con- 
.sumed  in  the  manufacture  of  cotton 
goods.  The  series,  despite  somewhat 
^r«>iiter  month-to-month  deviations, 
exhibits  unmistakably  Ihe  same  cycle 
as  pig  iron  production.  Numerous 
other  series  show  the  same  phenome- 
nu!i.  In  particular,  the  universality  of 
tlie  cycle  may  be  obseived  in  a  general 
Index  of  the  volume  of  manufacture  a,<5 
a  whole  for  the  period  from  January, 
1919.  to  July.  1921. 

This  index,  recently  developed  by 
the  Haivard  University  committee  on 
e<  nnomic  re^search,  is  base<l  upon  scrie.^ 
lepresenting  eight  important  groiipsof 
manufacturing  industries.  The  repre- 
sentative character  of  ilie  groups  i.s 
indicated  by  their  basi(  I'roduct.s:  (1) 
iron  and  steel;  (2)  lumber;  (3)  paper; 
(4)  leather;  (.5)  petroleum:  (6)"tex- 
tiles;  (7)  foodstuff.s;  (8)  tobacco.  In- 
dices of  the  volume  of  manufactui-e 
an-  developed  for  each  cme  of  those  In- 
du.<<lrial  groups,  and  these  eight  group 
indices  are  in  turn  combined  into  the 
index  for  manufacture  a.s  a  whole.  The 
index  i.s  shown  graphically  in  Chart  II. 

The  index  register.s  clearly  the  cyc'e 
through  which  manufacture  has  passed 
i  t!ii-  (OMntiy  t^inee  ihc  .Signing  of 
the  armistice.  The  general  slump 
w  uhIi  oijciiod  tlie  period  had  run  its 
coiiiao  hy  March.  1913.  From  the 
spring  of  that  year  to  March,  1920. 
time  vva.s  a  .strong  upward  movement 
impeded,  but  not  reversed,  by  the  steel 
and  .soft  coal  strikes  of  the  fall  and 
lli«  railroad  congestion  of  mid-winter. 
April,  1921.  witnessed  the  turn  of  the 
tid<'.  From  tlien  until  October  there 
was  a  gradual  curtailment  of  Indus- 
Iriiil  output;  and  in  No\  ember  and  De- 
cember, .sudden  and  drastic  contrac- 
tion. The  opening  of  1921  found  man- 
nfaeture  generally  at  a  low  level.  It 
remained  there  during  the  ensuing  six 
month.s,  unmistakable  pf<ins  in  some, 
lines  being  offset  by  heavy  losses  In 
others.  July  showed  the  lowest  output 
of  any  month  during  the  cycle. 
.Available  data  for  August  record  a 
dehnite  improvement,  and  the  Index 
for  September  promises  to  rise  dis- 
tinctly above  80  per  cent  of  the  1919J 
monthly  average.  An  upward  move- 
ment .«eems  clearly  under  way. 

Careful  examination  of  the  cycle  of^ 


i 


THE    BUSINESS   CYOLB 


indtistrial  output  suggests  a  number  of 
provisional  conclusions.  In  the  first 
place,  it  is  apparent  that  the  lengrth  of 

the  wave-like  movement  is  not  e::actly 
the  same  from  one  cycle  to  another. 
Unequal  intervals  elapse  between  the 
periods  of  maximum  output,  as  well  as 
between  the  times  of  most  extreme 
lethargy.  The  cyclical  character  of 
the  fluctuations  is  unmistakable,  but 
the  movement  obviously  is  not  of  a 
mechanical  sort. 

Period  of  Depression  Shorter 

Second,  it  may  be  noted  that  the 
period  of  industrial  activity  tends  to 
be  of  longer  duration  than  the  period 
of  depression.  Output  seldom  remains 
below  normal  continuously  for  longer 
than  a  year  and  a  half.  On  the  other 
hand,  production  has  been  well  above 
normal  continuously  for  periods  as 
long  as  two  or  three  years,  not  to  men- 
tion   the    period    of    practically    four 


years  due  to  the  incidence  of  war  de- 
mands. 

In  the  third  place,  comparison  of 
the  data  indicates  that  the  timing  of 

the  phases  of  the  cycle  differs  widely 
from  trade  to  trade.  t.>nc  industry 
will  be  already  experiencing  reaction, 
while  another  seemingly  enjoys  com- 
plete prosperity.  Thus,  as  early  as 
May,  1920,  the  slump  had  begun  in  the 
textile  trade.  It  was  not  until  the  fol- 
lowing November  that  production  in 
tile  iron  and  steel  industry  showed  a 
marked  decline.  Whether  these  rela- 
tionships of  the  different  traders  are 
regular  and  persistent  only  further 
investigation  will  determine,  but  it  is 
already  evident  that  the  phases  of  the 
evcle  are  not  at  all  simultaneous 
throughout  the  industry,  but  are  di- 
verisei..   timed. 

Finally,  it  seems  clear  that  there  is 
wide  vaiiation  in  the  amplitude  of 
fluctuations  in  different  industries. 
The  iron  and  .steel  trade  is  subject 
to   extreme   disturbances.     The    range 


between  maximum  and  minimum  pig- 
iron  production  is  much  greater  thaa 
the  range  between  maximum  and  min- 
imum cotton  manufacture.  The  fluc- 
tuations of  woollen  and  worsted  manu- 
facture also  seem  to  have  a  much 
greater  amplitude  than  those  of  cot- 
ton. Other  industries,  such  as  tobacco 
manufacture,  meat  packing,  and  flour 
milling,  show  narrower  variations  thaa 
the  textiles. 

Despite  these  siamiflcant  differences 
in  the  various  stouds  of  industries, 
the  pervasiveness  of  the  cycle  is  clear. 
The  ups  and  down  of  industrial  out- 
put are  not  to  be  charged  to  mone- 
tary and  financial  systems  nor  to  polit- 
ical administrations.  At  critical  jun^ 
tures  governmental  action  may  ■  haii- 
ten  industrial  movements  of  a  funda- 
mental sort.  But  the  cycle  runs  it« 
course  under  varying  financial  condi- 
tions and  with  little  reference  to  th* 
fortunes  of  political  parties.  It  con- 
stitutes one  of  the  underlying  influ- 
ences to  which  modem  business  enter- 
prise is  ever  subject. 


October  21 


"We  Mustn't  Go  It  Blind  Any  More*' 


By  John  Palmer  Gavil 

"Something  in  particular  must  have  sent  you  out  on  the  Boston  Post 
Road  in  Norwalk  in  the  spring  of  1920  to  count  the  spare  tires  on  the  rear 
ends  of  automobiles  and  see  the  bottom  fulling  out  of  your  own  business. 
What  was  it? 

;]A  hunch." 

"'Yes,  but  hunches  don't  come  out  of  nowhere.   Was  your  business  falling 


oirr 


"No.   It  seemed  to  be  growing.  Everything  looked  all  right.' 
"Then  whence  the  hunch?" 


P.  I*  L^mson,  treasurer  of  tne  Nor- 
walk Tire  and  Rubber  Company, 
pushed  the  papers  aside  on  his  desk, 
looked  out  from  under  his  heavy  black 
eyebrows,  and  closed  one  eye,  not  with 
a  wink,  but  as  one  who  wonders 
whether  he'd  better  tell. 

"In  order  to  answer  that  question 
I've  got  to  go  into  a  private  family 
matter.     Yes,   home   psychology." 

"Isn't  this  a  time  for  all  the  cards 
face  up?  I  guess  domestic  psychology 
lies  at  the  bottom  of  all  this  business 
of  'business  cycles,  in  the  last  analy- 
sis." 

"Well,  all  right,  here  goes.  In  1919, 
when  everything  looked  fine,  didn't  you 
sit  with  groups  of  men  who  pulled  out 
the  .flaps  in  pockets  to  show  the  date 
of  the  suit  and  boasted  about  the  age 
of  their  clothes?  Or  turned  up  the 
soles  of  shoes  to  show  you  the  holes 
in  them?" 

"I  did.     I  can  do  it  yet." 

"That  was  men.  Men  stopped  buy- 
ing, 'way  back  in  1919.  Women  didn't. 
My  own  wife  didn't.  She  made  her 
trips  to  New  York  pretty  much  the 
same.  Prices  were  high,  and  the  bills 
we  paid  showed  it. 

When  the  A^omen  Stopped  Buying 

"But  in  the  spring  of  1920  the  bills, 
with  the  same  high  prices  and  every- 
thing going  apparently  full  speed,  be- 
gan to  fall  off.    My  friends  were  notic- 


ing the  same  thing.  Wives  stopped 
making  their  trips  to  New  York.  They 
bought  in  Norwalk  only  what  was  ab- 
solutely necessary.  1  said  to  myself, 
'It's  all  off;  the  women  have  stopped 
buying.' 

"Then  was  when  I  got  the  hunch  to 
go  out  on  the  Post  Road  and  see  about 
spare   tires." 

"People  who  used  to  carry  three 
spare  tires  cairied  only  two?" 

"They  didn't  carry  any!  I  didn't 
bother  about  the  local  machines;  a 
man  will  take  a  little  ride  round  town 
without  any  spare  tire.  And  I  didn't 
pay  close  attention  to  the  Fords.  I 
kept  count  of  the  big.  expensive  ma- 
chines with  cliauffours.  owned  by  men 
who  had  money  for  tires  if  they 
wanted  to  spend  ii.  Pierce- Arrows, 
Locomobiles,  Cadillacs — all  the  high- 
priced  machines,  coming  through  from 
Ma.ssachusett.s,  Penn.sylvania,  Ohio, 
from  long  distances,  touring.  They 
didn't   have  any  spares." 

"How  long  does  it  take  for  a  con- 
dition like  that  to  work  from  the  con- 
sumer, through  retailer,  jobber  and  so 
on,   back  to  the   factory?" 

"Oh,  maybe  six  or  eight  months.  It 
begins  gradually,  almost  impercepti- 
bly, gathers  momentum  but  is  not 
generally  recognized  until  it  reaches 
its  peak — or  rather,  the  bottom  of  the 
slump.  It  differs,  of  course,  in  dif- 
ferent  lines   of  business." 

"But  in  the  ordinary  course  of  af- 
fairs,   without   anybody   studying   the 


tail-ends  of  automobiles,  the  manv* 
facturer  has  now  no  means  of  know* 
ing  promptly,  accurately,  or  perhaps 
even  generally,  that  the  buying  pubUe 
is  'backing  up'  on  him." 

"Exactly." 

"What  did  you  do?" 

"Came  right  over  here  and  got  busy. 
M.v  colleagues  saw  instantly  what  It 
meant.  We  acted  accordingly;  slack* 
ed  up,  got  rid  of  surplus  raw  ntukteiial 
and  generally  prepared  ourselves  for 
the  storm. 

"Of  course,  lots  of  other  manufac- 
turers did  the  same  kind  of  thing,  on 
information  and  hunches,  each  in  his 
own  fashion.  Lots  of  tliem  didn't.  The 
destructive  force  of  the  sma^h  when  it 
came  affected  the  Individual  concern 
in  pretty  direct  ratio  to  the  accuracy 
and  sufficiency  of  the  Information  it 
had    in    advance." 

There  was  a  lot  more  of  tlie  long 
and  utterly  candid  talk  with  which  Mr. 
Lamson  favored  me; .  but  it  all  had  t« 
do  with  the  vital  necessity  for  ths 
ends  of  intelligent  manufacturing  an* 
planning  for  good  times  and  bad,  ot 
prompt  and  accurate  mformatlon  on 
the  subject  of  business  conditlonai» 
trends,  and  tendencies. 

We  Mustn't  Go  It  Blind 

"We  mustn't  go  it  blind,  or  depend 
upon  gruesswork  and  bunches  and  in» 
spiratlons,"  said  Mr.  Lamson.  "Ws 
must  know. 

'Take  orders  for  automobiles,  for  ex- 
ample. Here  came  in  tidings  of  several 
inQuirles  for  cars  that  c»uldn't  be  fill- 
ed because  everybody  was  oversold.  A 
man  had  gone  to  one  agency;  hs 
wanted  a  car  right  away.  Couldn't  get 
it  under  three  months,  or  six.  Nothing 
doing.  He  went  to  another.  Same 
answer.    And  to  another,  and  anoChor. 


t'  ; 


I  ^ 


^  11 


12 


THE    BUSI^NESS    CYCLE 


Finally  he  did  manage  to  get  one — one, 
mind  you.  That  was  all  the  cars  that 
that  man  wanted. 

"But  back  lo  each  of  the  I  ome  of- 
fices went  the  news  that  reque;:^rs 
were  pouring  in,  and  each  concern  got 
the  push  of  an  apparent  big  demand. 
The  salesmen,  keen  for  commissiont?, 
plaj'ed  it — sincerely  enough — for  all  it 
was  worth,  and  the  factorie.s  whipped 
up  production.  Information  —  there 
wasn't  any.  Yet  if  the  information 
that  ea<  h  (.oiiv  ein    had   about  its  own 


'  business   had  be^n  gathered,  collated. 

and  put  forth  pronnptly  and  clearin  by 
I  and  put  forth  promptly  and  clearly  by 
j  ture  would  have  saved  us.  in  a  consid- 
!  erable  degree,  from  being  misled. 

"Had  such  facts,  properly  set  forth, 
.  been  available  in  1*19  and  1920  the 
j  wave  of  profiteering  that  almost 
'  rocked  the  foundations  of  our  Govern- 
!  ment  b.v  creating  widespread  unrest 
;  and  dissatisfaction  among  all  classes. 
,  and    circulation — or    anyway    the    ac- 

teptance — of  the  false  information  un- 
;  der  the  guise  of  statistics  coming  from 


sources  Interested  in  the  spreal  of 
just  such  material,  which  led  th«  in* 
dustries  of  the  nation  into  a.  wild  race 
of  expansion  and  an  orgy  of  produ^;- 
tion.  leading  unfailingly  to  a  national 
depression  and  wastefulness  and  sac- 
rifii^e  of  capita]  and  an  unprecedented 
recoid  of  unemployment,  would  un- 
doubtedly have  been  avoided." 

Mr.  Lamson  then  went  on  to  out- 
line his  definite  plan  for  gathering 
and  exhibiting  such  information.  This 
will  be  set  forth  in  another  article 
to-morrow. 


October  22 


"What  Shall  We  Do,  Then?" 


The  response  of  readers  of  the  Evc- 
nltiii  Post  TO  tho  discussion  of  funda- 
mental economic  law  underlying  the 
fluctuations  of  prosperity  and  depres- 
sion, which  has  been  a  feature  of  this 
newspaper  duiing  the  past  week, 
shows  the  keen  desire  of  business  folk 
of  all  classes  to  gain  a  clearer  under- 
standing of  the  factors  which  govern 
success. 

Wesley  Clair  Mitchell's  articles  in- 
troducing the  series  of  discussions  to 
which  other  students  of  economics  and 
of  business  in  the  concrete  will  here- 
after contribute  have  painted  a  large 
background  for  the  specific  opinions 
of  bankers  and  business  men.  Wo 
think  he  has  established  to  the  undm- 
standing  of  any  reasonable  reader  Ihe 
fact  of  the  "Business  Cycle."  Ilc<oe:- 
nition  of  this  fact,  and  understand- 
ing of  the  factors  involved  in  its  con- 
crete demonstrations,  based  upon  ;u- 
curate  statistical  information  promot- 
ly  and  regularly  published,  will  assist 
discerning  business  men  in  adjusting 
their  affairs  to  the  ebb  and  flow,  ar.d 
even  in  modifying  the  extremes  of  the 
ebb  and  the  flow  by  intelligent  co- 
operative action. 

The     rea'fcr,     however,     sometimes 


turns  from  studies  like  these.  e.->n- 
vlnipcd  of  the  general  principles  i^ut 
v/ith  an  unsatisfied  mind,  because  he 
does  not  see  what  they  mean  to  hirn 
individually,  in  terms  of  to-day's  defi- 
nite action. 

"This  is  all  very  well."  he  says  to 
himself,  "but  I  want  to  know  what  it 
means  for  me,  here  and  now.  What 
can  r  actuallj"  do  to  fit  my  own  busi- 
ness into  the  situation  that  all  these 
fellows  are  talking  about?  What  shall 
T  do,  personally,  next".'" 

We  think  that  the  discussion  of  gen- 
eral principles  and  the  detailed  re- 
ports and  opinions  which  the  Evenin/j 
Post  has  thus  far  published  make  clear 
a'-  least  four  things  that  any  business 
man  can  do  forihwith,  and  that  they 
are  the  right  things  to  do: 

(1)  Study  your  business  situation  as 

it  exists  right  now.  Determine  as 
ncarl.v  as  you  can  the  conditions  of 
supply  ,ind  demand  for  your  pioduitt 
;ind  i;i\v  materials  in  relation  to  the 
general  curve  of  your  industry  and  of 
general  business 

(2)  Assuming  that  you  are  faii'y 
well  liquidated  and  ready  to  take  ad- 
vantage of  the  slowly  but  steadily  im- 
proving conditions,  don't  wait  any 
longer,  but  enter  now  upon  the  ex- 
tensions,     alterations,      repairs,      and 


additions  to  equipment  that  •>"  '■"'* 
reasonably  sure  will  be  needou  ...  t  ^ 
next  few  months.  The  poslilon  i-i 
general,  with  some  exceptions,  is  ad- 
vantageous in  respect  of  both  wajres 
and  prices  of  materials.  And  you  will 
incidentally  be  helping  to  lessen  un- 
employment and  accelex-ate  the  gen- 
eral  revival. 

(S>  Watch  the  market*  for  raw 
maieiials  used  in  your  industry,  hav- 
ing in  mind,  not  some  abnormally 
low  level  of  prices,  but  the  general 
average  level  at 'which  under  normal 
conditions  you  can  use  them  profita- 
bly. Make  reasonable  contracts  on 
that  basis  for  future  delivery  as  your 
business  gains  momentum.  This  is 
no  suggestion  of  an  intensive  "buy- 
ing week"  or  anything  of  the  sort- 
Use  your  judgment  and  add  courage. 

(4)  With  the  coopei^tlon  of  your 
banker,  extend  credit  judiciously,  so 
that  those  through  whom  you  have 
to  distribute  your  product*  can  get 
under  way  also. 

Without  any  desire  to  whip  up  ^)usl- 
ne."?a  or  industry  beyond  the  careful, 
really  conservative,  sane  rate  which 
present  conditions  justify,  we  believe 
that  the  time  for  hypter-caution  and 
foreboding  has  passed,  and  that  now 
is  the  time  to  act,  to  move  forwarJ 
with  courage. 


Things  Business  Should  Know 


By  John   Palmer  Gavit 

{This  is  the  conclusion  of  mi  intercieu-  u-ith  Atr.  F.  L.  La  in  son. 
treasurer  of  the  "Xonixilk  Tire  and  Rubber  Conipauy.  of  Morivalk. 
Conn.,  about  the  necessit/j  of  reliable  and  linielj/  information  concern- 
ing rnanufac luring  and  business  conditions.  The  first  article  was  pub- 
lished ill  the  Evening  Post   ycsirrdaii.) 

"Coming  down  to  brass  tacks,"  !;aici  Mr.  Lamson.  "it  is  easy  enough  lo 
ny  that  if  we  had  known  all  about  the  .slate  of  affairs  in  industry  before 
the  storm  broke  upon  us  last  year  we  not  only  could  have  lowered  our  "ears 
and  set  our  brakes  fot  the  steep  downgrade  ahead,  but  could  even  *havu 
gone  far  to  avoid  the  steepness,  of  the  grade  altogether.  We  didn't  know— 
that's  no  secret. 

"The    question    is.    not    whether    we* 1 ___^ 


ought  to  have  known,  but  wliat  we 
ought  to  have  known.  And  is  it 
r.-ossiblc  to  know  that?  Is  the  infor- 
mation to  be  had,  and  it  so,  low  can 
it    be    made    practically     available    in 


simple  form  for  the  manufacturer  or 
business  man  with  intelligence  lo  see 
2  and  2  making  4,  so  (hat  he  can  un- 
derstand it  and  act  upon  if.' 

"If  you   were   to  come  in   here  any 
time  and  ask  me: 


"  'What  is  the  normal  productitht  in 
your  esinblishmenlf  I  couid  tell  you 
in.eiantly.  ai:d  1  would.  There's  no 
great  secret  about  it;  men  talk  such 
things  over  at  first  meeting,  on  the 
commuters'  trains,  and  wherever  rhey 
meet 

'And  I  would  just  as  qulclcly  antwer 
the   other  question: 

"What  is  the  present  produ^int 
toith  reference  to  noimalt  At  what 
rercentage  of  your  normal  capuiity 
are  you  running  now?' 

'Very  well;  the  answers  to  these 
questions,  if  you  had  them  for  any 
whole  industry,  would  enable  each 
concern  to  determine  where  it  stood 
with  reference  to  the  whole  indu«trv. 
And  if  you  had  the  answers  totalled 
for  all  the  industnes  of  the  count-y 
you  would  come  pretty  near  knowing 
how  things  were  going  generally. 

'  li    is  essential   '.n  the   planning  of 


i        k 


THE    BUSINESS   CYCLE 


< 


'v*' 


13 


purchases  and  production  to  know 
also  tht  consumption  of  raw  material, 
raw  materials  on  hand,  the  jiv.ount  of 
finished  product  produced,  finished 
product  on  hand,  and  the  principal 
product  sold  or  distributed  during  a 
given  period. 

"These  details  of  his  own  situation 
the  individual  manufacturer  might  not 
be  so  ready  to  disclose;  but  if  he  knew 
the  general  situation  in  these  respectR 
throughout  his  particular  trade  i* 
would  be  of  the  utmost  value  to  him, 
and  to  the  whole  industry.  Then  sup- 
ply w^ould  be  more  nearly  harmonized 
with  demand;  the  panicky  buying  and 
selling  now  in  vogue  would  be  lessened 
If  not  entirely  eliminated;  inefficient 
and  Impulsive*^  production  and  selling 
policies  would  be  more  quickly  and 
easily  detected." 

Monthly  Reports  of  All  Industries 

'Such    information    would    have    to 

b*f    very    much    up-to-the-minute."   1 

\entured.     "The  statistical  machinery 
moves  slowly,  and " 

"It  doesn't  move  slowly  in  the  re- 
ports of  the  wheat  and  cotton  crops, 
does  it?  Don't  you  newspaper  men 
get  those  reports  by  telegraph,  and 
right  up  to  date?" 

"Tes.  we  do.  Men  wait  on  tip- 
toe, and  try  to  steal  the  information 
in,  advance." 

"W«ll,  I  would  have  this  information 
gathered  and  made  public  not  later 
than  the  loth  of  each  month  for  the 
preceding  month.  That.  I  believe, 
would  be  often  and  prompt  enough  for 
the  planning  of  industry  and  geneiai 
trading  l)ased  upon  an  accurate 
knowledge  of  the  true  conditions  in 
each  industry  and  In  all  Industries 
rombined — for  the  industries  are  in- 
terrelated to  a  very  great  extent.  Ont 
should  know  as  well  the  general  back- 
ground of  industry  as  a  wholp. 

"Timeliness  is  as  essential  as  arc 
the  facts  themselves." 

"Government  is  the  only  agency  that , 
fan  get  such  information,"  1  «ug- 1 
gested. 

"I  think  so.  Certain  people  havi  | 
favored  the  gathering  of  this  infor- 
mation directly  by  oi  with  t'lp  as-j 
distance  of  the  trade  associalionj;;  but  | 
1  personally  foresee  re1iictan<;e  on  th^  j 
part  c'  individual  concern-  to  expose, 
the  'innard.«s"  of  thoir  laisinesj"  'o  Iheii  ' 


competitors.  I  tould  give  you  some 
particulars  of  experience  to  support 
that  idea,  but " 

Scope  of  the  Information  Needed 

"What  sort  of  questions  would  you 
iiave  asked — whoevri-  it  was  thai 
asked   them?" 

"The  monthly  report  that  1  would 
request  from  each  concein  would  cover 
these    points: 

(1)  Principal  and  secondary  prod- 
ucts, respectively. 

(2)  Number  of  employees,  male, 
female,  children   under  sixteen,  and 
grand    total.      Proportion    of    these, 
male  and  female,  who  are  "common 
laborers." 

(.^)  At  what  percentage  of  total 
maximum  capacity  is  the  plant  now 
operating?  (This  should  be  estimat- 
ed on  the  normal  production  of  the 
plant,  assuming  all  conditions  favor- 
able to  production.) 

(4)  If  production  is  not  maximum 
capacity,  what  arc  the  principal 
causes  or  limiting  factors? 

(5)  Principal  raw  inaterial  con- 
.«iumed  week  ending  "last  pay  day" — 
name,  unit,  quantity. 

(6)  Principal  raw  material  on 
hand  "last   pay   clay"- — quantity. 

(7)  Second  principal  raw  ma- 
terial consumed,  week  ending  "last 
pay-day,"  name,  unit,  quantity. 

(8)  Second  principal  raw  ma- 
terial on  hand,  "'asi  pay-day." 
quantity. 

(9)  Principal  finished  product 
produced  week  ending  '"last  pay- 
ija.v,'*  unit,   quantity. 

(10)  Principal  finished  product 
on  hand  "last  pay-day,"  quantity. 

(11)  Second  principal  finished 
product  produced.  week  ending 
"last  pay-day,"  name,  imit,  quantity. 

(12)  Principal  products  sold  last 
calendar   month,   qtiantity. 

(13)  Second  principal  products 
.sold  last  calendar  month,  quantity. 

(14)  What  percentage  of  produc- 
tion last  month  was  on  principal 
product? 

"The  answers  to  these  questions 
would  Ibe  reasonably  accu?ate  right 
favay:  but  one  of  the  effect  ■  of  rfiich 
reports  would  be  to  acquaint  oom<>  in- 
du.strial     managements     nio.e     closely 


with  ihtfiv  own  conditions.  Accuracy 
would  steadily  increase.  Business 
men  would  quickly  learn  anything 
they  are  not  minutely  acquainted  with 
now. 

It  Would  Disclose  Unemployment 

"The  number  of  employees  on  the 
factory  payroll  is  the  most  accessible 
record  in  any  plant.  Suppose  there 
were  but  thiee  plants  in  a  given  in- 
c'.ustry,  and  that  their  answers  .it  the 
end  of  a  certain  month  showed — (Mr. 
ijamson   quickl.v  sketched  a   table). 

Per  cfiit  Nuinb«r  of  em-  Normal 

of  capacit.T.  ploye^s  workinc-        employment. 


35 

700 

2.000 

K.'i 

U50 

t.OOO 

85 

850 

1,000 

"Instantly  you  would  see  that  the 
industry  at  full  capacity  would  em- 
ploy 4,000  persons;  that  the  2,200  rep- 
resented an  average  of  55  per  cent  of 
the  normal.  And  you  would  see  1.800 
as  the  number  of  unemployed  at  that 
moment  in   that  industry. 

Cost  of   "Labor  Turnover* 

'We  figure  that  every  new  employee 
brought  into  our  industry  costs  ue  $50 

to  train.  That's  one  of  the  things  that 
running  below  capacity  and  unem- 
ployment means  for  the  industry;  it 
points  straight  at  the  very  great  loss 
to  industry  of  th»  'labor  turnover,'  J 
don't  know  what  the  education-cost 
of  new  emp!o;'ces  is  ir.  other  indus- 
tries, but  there  can  be  no  question  of 
its  force  as  an  argument  for  reducing 
'seasonal  unemployment.' 

"And  the  grand  total  of  these  figure* 
for  all  industfles  would  tell  us  about 
total  unemployment  In  industries — 
what  we  now  guess  at. 

"Such  a.  plan  as  I  have  outlined 
would  (1)  make  available  planning 
statistics  sufficiently  complete,  com- 
prehensive, and  authoritative;  (2)  it 
would  put  producers,  sellers,  buyers, 
and  the  public  all  in  possession  of  the 
same  fundamental  facts,  consequently 
placing  each  interest  in  the  same  rela- 
tive position  for  trading.  And  (3)  it 
would  establish  a  confident?  thai 
would  contribute  to  a  generous  sup- 
port on  the  part  of  producers  in  se- 
en ting,  disseminating,  and  contintiing 
permanently  such   information.'* 


October  24 


Bankers  Can  Check  Depressions 

In  Advantageous  Position  to  Know  the  Facts  of  Busines, 
They  Can  Take  Action  to  Lesson  the  Bad  Effects 

of  Fluctuations  of  the  Cycle 


or  foui-  years  is  a  pioposition  sup- ,  valuable  book  on  'Business  Cycles"  as 
ported  by  such  an  abundance  of  evi-  j  a  process  of  "cumulative  change  by 
dcnce  as  to  be  accepted  by  most  stu- 1  which  a  revival  of  activity  develops 
dents  of  finance.  Some  of  this  evidence  j  into  intense  prosperity,  by  which  this 
has  been  given  in  the  preceding  ar- ,  prosperity  engenders  a  crisis,  by  which 
tides  of  this  series.  The  general  <  hai  - '  crisis  turns  into  depression,  and  by 
nounced  cyclical  movements  in  busi-iacter  of  the  cycle  has  l>een  tersely  de- 1  which  depression,  after  growing  mor*> 
ness  with  a  normal  periodicity  of  three '  fined    by    Wesley    C.    Mitchell    in    his !  severe  for  a  time,  finally  leads  to  such 


By  Edwin   Walter   Kemmerer. 

Princeton    UaiTeraity. 
That  there  exist  in  the  United  States 
and     other    advanced     countries     pro- 


\ 


.V 


>Mtik»^kmA 


muii 


--J 


ii^,'.if^^*Vu. 


THE   BUSINESS  CYCLE 


THE    BUSINESS   CYCLE 


in 


m,  revival  of  activity  as  that  with  which 
tbe  cycle  began." 

There  ia  no  class  in  the  community 
more  vitally  aifected  by  the  busi- 
ness cycle  tiian  the  bankers;  there  is 
probably  no  other  class  in  such  a 
favorable  position  as  they  to  contri- 
bute towards  the  reduction  of  the 
•viis  of  the  cycle. 

These  evils  are  serious.  The  busi- 
ness cycle  Is  in  fact  essentially  baa. 
It  is  an  expression  of  alternating 
"nerves"  and  depression  on  the  part 
of  the  body  economic  which  would 
function  more  efficiently  ana  mord 
comfortably  if  it  could  maintain  its 
composure.  Both  the  banks  and  the 
businees  public  would  be  better  off, 
for  example,  with  stable  interest  rates 
than  with  alternatingly  rising  and 
tailing  ones,  reasonably  stable  se- 
curity prices  would  be  better  for  the 
banker  and  the  public — although  per- 
haps not  for  the  broker  or  the  specu- 
lator— than  prices  alternately  rising  to 
abnormal  heights  and  then  falling  to 
abnormal  depths;  the  laboring  man, 
the  business  man,  and  the  banker 
would  be  much  better  off  if  labor 
were  continually  employed  at  prac- 
tically full  time  on  normal  wages 
than  they  are  with  alternating  periods 
of  labor  scarcity  and  abnormally  high 
waces  with  their  accompaniments  of 
labor  inefflciency  and  health-destroy- 
ing overtime,  on  the  one  hand,  and, 
on  the  other  hand,  with  periods  of 
ttnemployment.  low  wages,  idle  capital, 
and  all  their  accompanying  hard- 
ahipti.  The  committee  on  waste  ap- 
pointed last  January  by  Herbert 
Hoover  as  president  of  the  Federated 
American  Engineering  Societies  in  its 
recently  published  preliminary  report 
aays:  "The  largest  area  of  waste  lies 
in  the  periods  of  slack  production 
and  unemployment,  due  to  the  ebb 
and  flow  of  economic  tides  between 
|>oomB  and  slumps." 

What  Can  Bankers  Do? 
Even  If  we  could  realize  the  Utopia 
of  eliminating  all  the  ups  and  downs 
of  the  business  cycle  we  would  still  be 
experiencing  all  the  changes  incident 
to  a  progressive  economic  order,  and 


business  would  still  be  subject  to 
enough  uncertainty  to  try  the  metal 
of  our  best  business  brains.  The  curve 
of  business  progress  (except  in  times 
of  war.  of  pronounced  failures  in 
crops,  and  the  like)  would  be  continu- 
ally advancing — now  rapidly,  now 
slowly — but  practically  always  ad- 
vancing, and  we  would  be  through 
with  the  "roller  coaster"  process  of 
reaching  new  heights  only  by  a  series 
of  nei-ve-straining  rises  and  falls. 

As  a  practical  proposition  can  any- 
thing be  done  by  the  bankers  to  flat- 
ten out  somewhat  this  business  cycle 
curve?  The  answer,  I  believe,  is: 
"Yes,  considerable  can  be  done,  and 
the  results  will  be  cumulative,  but  the 
accomplishments  at  the  beginning  will 
at  best  be  small."  What  should  be  the 
line  of  action?  It  may  be  summed  up 
in  two  words,  knowledge  and  discount- 
ing. 

The  business  cycle  thrives  on  un- 
certainty. The  better  it  is  understood 
and  the  more  widely  diffused  is  the 
knowledge  concerning  it,  the  less  harm- 
ful will  it  be.  If  bankers  and  business 
men  should  come  to  understand  the 
pronounced  character  of  the  cyclical 
movement  of  the  last  three  decades  as 
they  have  been  ably  described  by  vari- 
ous economic  writers,  if  they  should 
do  their  part  toward  collecting  data 
and  in  other  ways  improving  our 
knowledge  of  the  business  cycle,  and 
should  keep  themselves  reasonably 
well  posted  as  to  the  approximate 
position  of  their  respective  businesses 
in  the  current  cycle,  all  rhis  would  re- 
sult in  a  material  flattening  out  of  the 
cycle  curve. 

Many  of  the  most  important  phe- 
nomena of  the  business  cycle  are  the 
intimate  facts  of  the  banker's  daily 
business,  such,  for  example,  as  the 
changinp  discount  rate,  the  movement 
of  security  prices,  the  varying  quality 
of  cellections,  the  extent  of  loans, 
renewals  and  the  expansion  or  con- 
traction of  lines  of  credit.  Further- 
more, the  banker's  business  gives 
him  a  large  amount  of  inside  in- 
formation concerning-  other  kinds  of 
buslnes.s.  He  receives  regular  finan- 
cial statements  from  his  principal  cus- 
tomers, and  in  other  ways,  through  hig 


credit  department,  keeps  posted  con- 
cerning the  developments,  favorable 
and  unfavorable,  in  those  businesses. 
To  protect  himself  he  must  ofteii  ex- 
ercise a  certain  amount  of  control 
over  the  businesses  of  those  to  whom 
he  grants  substantial  lines  of  credit. 
Hi»  couilsel  and  advice  are  usually  lis- 
tened to  with  respect.  To  an  increas- 
ing extent  the  banker  has  become  a 
paitner  in  nearly  every  important 
business — a  silent  partner  nominally, 
but  not  always  actually,  as  many 
business  men  have  recently  found.  The 
banker,  therefoie,  is  in  a  highly  ad- 
vantageous position  for  promptly  se- 
curing knowledge  of  the  movements, 
tute  the  business  cycle,  while  through 
his  own  operations  and  through  his 
influence  on  the  operations  of  his  cus- 
tomers, he  should  be  able  to  exercise 
a  real  force  by  anticipating  and  dis- 
counting the  prospective  movements 
of  the  business  cycle.  Some  of  the 
methods  by  which  this  may  be  accom- 
plished will  be  considered  in  to-mor- 
row s   article   on   this   subject. 

A  good  illusti-ation  of  how  such  a  re- 
sult has  been  accomplished  In  a  sim- 
ilar field  is  given  in  the  accompanying 
chart,  showing  the  seasonal  swings  of 
sterling  exchange  rates  in  New  York 
for  1890-1899.  1900,  1908.  and  for  1909- 
1 S;  I  '.'>,    respectively. 

It  will  be  noted  that  the  fluctuations 
of  the  last  period  are  much  narrower 
than  those  of  the  first  period.  This 
flattening  out  of  the  sterling  exchange 
curve  was  brought  about  chiefly  by  an 
increasing  resort  to  the  practice  of 
making  forward  contracts  in  exchange 
and  by  the  increasing  ."ale  of  finance 
bills  so  timed  as  to  fall  due  when  our 
cotton  and  cereal  bills  would  be  thrown 
oil  the  market  in  the  largest  volume. 
By  this  process,  the  exchange  rates  in 
tho  summer  were  prevented  from  ris- 
ing so  abruptly  or  to  as  great  heights 
as  they  otherwise  would  have  risen, 
and  exchange  rates  in  the  fall  were 
prevented  from  falling  so  abruptly  and 
to  the  same  extent  that  they  otherwise 
would  have  fallen.  The  normal  sea- 
son;tl  swing  of  exchange  rates  was  not 
eliminated,  but  was  ironed  down,  to 
thf  great  advantage  of  our  foreign 
trade. 


October  25 


Bankers'  Aid  in  Stabilizing  Business 

Far-Sighted    Men    Can    Take   Action   Themselves   and 

Induce  Customers  to  Play  Safe  When  Facts  of 

Business  Cycle  Predict  Depression  Coming 


'  By  Edwin  M.  Kcmmerer, 

.     .  i  TroteaeoT  of  Kconomlcs  and  Finance,  Princeton    University. 

The  evil  effects  of  the  business  cycle  would  be  reduced  If  the  public 
emild  anticipate  the  movements  that  constitute  the  normal  cycle  and  discount 
them.  Economic  movements  that  are  widely  anticipated  are  thereby  either 
prevented  from  taking  place  or  mollified  in  their  occurrence. 

Assume  for  example,  that  the  evi-* 
dence  at  a  particular  time  shows  we 
are  several  years  along  on  the  rising 
curve  of  a  business  cycle,  that  there 
iMa   bean   no   substantial    liquidation 


for  two  or  three  years,  that  specula- 
tive activity  is  running  high  on  the 
exchanges,  that  prices  of  the  more 
speculative  stocks  are  rising,  that 
bank  clearings  are  large,  that  reserve 


ratios  at  Federal   Reserve  banks  andi 
conmiercial  banks  are  tending  down-* 
waid,     call     and     short  time     interest 
rates    and    Federal    Reserve    diarount 
rates  rising,  the  ratios  of  bank  loan;  i 
to   deposits   increasing,   credit   becom 
Ing    more    and    more    extended,     an< 
thai     commercial    failures    for     som« 
titne    have   been   running   abnormaJh 
low     showing    that   little    dead     wooi 
has  of  late  been  cut  out  of  the  busi' 
ness  structure.     This,  for  example,  it 
a  substantially  correct  picture,  afr^^l** 
year  1906,  and  o£  -the 


'  '     1- 


f 


1919.  and  the  early  part  of  1920. 
^  Fundamental  crop  conditions  at  sucii 
a  time  may  or  may  not  be  good— it 
they  are  pooi,  so  much  the  wor^e— 
but  the  other  conditions  .  mentioned 
would  be  ominous,  and  partioulaily  so 
If  they  were  occurring  as  aliove  as- 
sumed at  somewhere  near  the  time 
period  when  according  to  past  experi- 
ence, the  cycle  might  be  expected  to 
be   approaching   Its   crest. 

What  Wouia  Banker  Do 

Under  such  conditions  what  should 
a  far-sighted  and  prudent  banker  do? 
The  answer  is  the  same  as  it  would  be 
•to  the  qufMion:  What  have  the  few 
most  far-sighted  and  prudent  of  our  | 
bankers  done  under  similar  conditions  j 
in   the  past? 

Broadly  tspeaking,  he  would  do  a  I 
number  of  the  following  things:  First 
of  all  he  would  probably  try  to  get  his 
assets  in  a  more  liquid  condition.  He 
would  sell  his  less  gilt-edged  secu'j- 
lies  while  the  .selling  was  good,  and 
place  the  proceeds  either  in  the  most 
gilt-edged  securities  on  the  market— 
the  kind  that  ordinarily  suffers  least  | 
in  a  period  of  crisis  and  that  usually 
alone  advances  during  the  early  part 
of  the  ensuing  depression — or  he  might 
purchase  with  the  proceeds  prime  (.oni- 
mercial  paper  of  short  maturities, 
scattering,'  well  his  risks.  He  would 
place  a  larger  proporLion  of  hia  re- 
•otjrces  m  the  best  tomn"»ercia)  paper 
of  concerns  outside  of  his  own  <om- 
tnunity  w^hose  businesses  were  of  the 
kinds  least  affected  by  crises — concerns 
whose  paper  he  would  have  no  re- 
sponsibility to  renew  ;ii  maturity.  He 
would  clean  up  hie  loan  accounts  with 
his  Federal  Reserve  bank  and  with 
his  coiTespondent  banks,  and  strength- 
en his  :v;serve  position.  He  would 
get  a  larger  proportion  of  his  pnpor 
into  short  maturities  rnd  would  bring 
pressuie  to  reduce  his  "capital  loarus," 
the  kind  that  have  foimed  the  "re- 
newal habit." 

The  general  pUm  o'  action  that  he 
adopted  for  himself  h  ^  would  suggest 
to  many  of  his  eustor  irr.<5.  1T(>  would 
advise  them  of  the  daiigei  oi:  a:i  un- 
due extension  of  capital  at  -sui  ii  a 
time,  and  of  the  danger  of  too  large 
an  inventory,  of  too  heavy  commit- 
ments in  the  purcha.se  of  raw  mate- 
rial.?, and  of  overextended  credits  to 
customers.  In  n  word  the  banker 
would  himself  play  safe  and  would 
urge  his  customers  to  do  likewise. 
He  might  be  premature  in  his  action: 
If  so,  he  could  console  himself  with 
the  thought  that  it  is  better  to  be 
safe  than  to  be  sorry,  that  he  moved 
In  the  right  direction,  and  that  the 
very  prematurity  of  himself  and  of 
others  who  acted  like  hiai  contributed 
towards  stabilizing  the  situation. 


;  The  pressure  of  the  market  is  so 
[much  more  likely  to  be  exerted  on  the 
'  side  of  undue  optimism  at  such  a  time 
that  the  danger  of  being  too  late  in 
making  such  preparations  is  greater 
than  that  of  being  too  early.  It  makes 
for  stability  moreover — for  a  lejss 
widely  fluctuating  adjustment  curve — 
If  bankers  and  business  men  will  differ 
to  a  reasonable  extent  as  to  the  proper 
time  for  adopting  such  measures, 
and  will  therefore  have  recourse  to 
them  at  somewhat  different  points  in 
the  rising  cycle.  The  effect  of  their 
actions  then  becomes  cumulative. 

Banker  Would  Profit 

The  extensive  adoption  of  such  a 
policy  on  the  part  of  bankers  would 
retard  the  upward  swing  of  the  busi- 
ness cycle  and  prevent  it  from  going 
so  far  as  it  otherwise  would.  It  would 
likewise  eliminate  the  necessity  of  a 
corresponding  downward  swing — in 
other  words,  it  would  tend  to  iroa 
down  the  curve  and  make  for  business 
stability.  This  would  be  a  social  gain, 
but  it  would  also  probably  yield  a 
financial  profit  both  to  the  banker  and 
to  the  customer  who  followed  his  ad- 
vice.   An  intelligent  discounting  of  the 


ing   the   curve   on   its   upward   move- 
ment ? 

Broadly  speaking,  he  could  reverse 
the  procedure  suggested  above  for  the 
time  when  the  cycle  was  approaching 
its  crest. 

The  preceding  liquidation  period  ac- 
companied by  a  relatively  large  num- 
bei*  of  failures  and  reorganizations 
would  have  cleared  the  way  and  made 
safer  a  forward  movement.  With  a 
substantial  perioi'  of  rising  prices  and 
I  rising  interest  rates  in  prospect,  both 
I  the  banker  and  the  business  man  could 
'wisely  make  <*ommitments  for  longer 
periods  than  before,  greater  risks 
would  be  justifiable  now  than  at  the 
previous  period.  The  cautious  making 
of  capital  extensions  and  improve- 
ments by  the  business  man  would 
now  be  sound  policy,  and  the  banker, 
although  he  should  keep  his  assets! 
reasonably  liquid,  would  not.  need  lo 
stress  liquidity  as  much  as  he  had 
at  the  other  period.  In  the  making 
of  loans,  local  industries  of  the  kinds 
that  had  been  most  thoroughly,  liqui- 
dated   should    be    favored,   and    longer 


economic   and   financial  future  always    maturities  should   be  acceptable.    The 


pays. 


extremely  g:it-edged  secinity  hoIdin".s 


In   the  above  illu.«»tiat  on  it   was  ae      „«,,iri  „.«ii   u  i*  j 

'  ^^^  as-    could  well   be  melted  to  a  substantial 


sumed 

foi-  some  time,  and  was  apparentlv 
approaching  its  crest;  the  situation 
would  be  reveis<»d  if  the  cycle  had 
been  a  declining  one.  In  buch  a  case 
a  process  of  liquidation  would  have 
existed  for  some  time,  the  record  of 
business 


which,  though  good,  would  not  be  the 
luxuries  from  the  standpoint  of  safetv 
that  the  previous  holdings  would  now 
have  become.  During  the  upward 
movement  of  the  business  cycle  cer- 
tain kinds  of  business  normally  revive 
quicker  than  others— commonly  these 


failures     would     have     been  ' 

relatively    high,    stock    exchange    ^r    i  ^.TThl  '"^"fu  ^^'■^~~^°'"™°"'y  ^hese 

,■   -^                       .     .      ,   '^^•cnange    ac-   are  the  ones  that  first  experience  the 

tiv.ty    comparatively    low.     with     the  |  dechne.  Such   industries^Srt"cularlv 
prices    of    the    mere    speculative    se- i  i'Jt."l*""^  *^*^^"  •^"^^^  ^^e  the  ones  that 
curities    riiiiei    .stagnant     or     tending      '       '^ 
downward,    and     those    of    the    most 


snould  first  receive  encouragement. 
Our  exact   position  in   the  cycle  at 

•i»      1      1  .  "     ®"^    time   can    never    he    known     and 

gilt -edged    mvestme.it   securities   rela-    sometime.^  it  is  impossible  to  feel  cer- 


..      ,       ,  .    ,  '    t-^.a-        ,  -- ^-  ,t  IB  iiijpussiuie  lo  reel  cer- 

tively    high    .,.s    compared    with    other  i '?'"  ^vcn  about  our  approximate  posi- 


-sceuiities.      liank    clearings    would   be 
low  and  bank   reser\e  ratios  would  be 


lion.  The  business  cycle,  moreover,  i.s 
only  one  of  many  fundamental  forces 
aiTerting     general      business.        It     Is 


high,    but    bank    funds   would     be     n.    crossed^n^  ircros^ed'bT'the'even 


I  rather  small   demand   because   of   the 
■  excessive  caution   of   business   men   in 
expanding     iheir      inisinesse,-?      oc      in 
j  stocking  up   wit:i    jaw   material.";.   The 
j  ratio.s     of      liank      loans      to      deposits 
v»ouid    be    low;    likewise    P'edei-al    He- 
serve      rediscounts.      The      pioverbial 
hand    to    mouth    p^^llcy   woulu    be    in- 
creasingly   ovicienf     in    bdsluess.    and 
unemployment      would      be      growing. 
"Things    in    genetal'     would    seem    to 
be    headed    towaru.s    a    period    of    de- 
pression.     Such   wa.«   the   situation    in 


more  regularly  recurring  seasonal 
cycle.  Then  again  there  are  the  move- 
ments covering  long  periods  of  years 
tike  the  wide  .swings  of  the  genera! 
price  level  and  of  the  interest  rato 
level  Always  there  i.s  the  uncertain- 
ty of  crops,  and  always  the  possibil- 
ity of  war.  A  new  condition  like  the 
present  after-war  situation  of  PJurope 
trinporanly  may  so  overshadow  the 
forces  of  the  usual  business  cvcles  a«i 
to  make  forecasting  and  the  discount- 
ing of  the  future  exceptionally  difB- 
cult.  By  and  large,  however,  and 
viewed  over  any  considerable  period 
o.    year.%    the   business   cycle   is   suffi- 


the   forepart   of   19(i7  and  such   in   ther'^«*'-^'   '■^S^"'**'"   J"    its   occurrence  and 

sufficiently    marked    In    its  manifesta 


main  has  been  the  situation  during 
the  greater  pari  of  1921.  What 
could  the  banker  do  towards  check- 
ing such  a  decline,  cutting  off  the 
lower  part  at  least  of  the  trough  of 
the  normal  business  cycle,  and  start- 


tions  to  make  possible  a  fairamoun' 
of  forecasting  and  discounting,  and  the 
banker  who  seriously  and  studiousl' 
makes  an  attempt  to  do  this  shoulil 
in  the  long  run  by  so  doing  brinfc 
profit  to  himself  and  render  a  valuaUa 
service  to   the  aemmunity. 


>-A 


'^  ■ 


THK   BUSUIESS   CYCLE 


Business  Cycle  and  Everyman's  Job 


One  of  the  moat  important  documents  to  come  before  the  recent  Presi- 
dent's Conference  on  Unemployment  held  in  WcLshington  was  a  report  on 
"Vncmployn:  ut  and  Business  Cycles."  This  report  is  here  published  for  the 
first  time  in  the  Evbninq  Post.  Definite  recommendations  are  made  for 
exhaustive  investigation  into  the  causes  and  remedies  of  periodic  business 
depression.     The  report  follows: 

The  first  tasks  of  the  President's  *- 
Unemployment  Conference  "were  to 
canvass  the  available  figures  concern- 
ing the  nilfnbers  of  men  out  of  work 
in  various  parts  of  the  United  States, 
and  to  consider  the  best  means  of 
mitigating  the  suffering  threatened  by 
the  present  emergency.  Now  that  these 
two  tasks  art)  accomplished  a  third 
task  must  be  undertalien,  a  task  that 
looks   to  the   future   rather  than   rhe 

present,  to  prevention  rather  than 
cure. 

While  the  proportion  of  wage  and 
salary  earners  now  out  of  work  is 
probably  Bouiewhat  larger  than  at 
any  previous  time  in  our  business  his- 
tory, the  present  emergency  is  not 
without  precedent.  A  similar  situation 
prevailed  in  the  winter  of  1914-15,  in 
1908,  and  in  1894.  to  go  no  further 
back.  Four  times  in  a  single  genera- 
tion the  numbers  of  the  unemployed 
In  the  United  States  have  been  count- 
ed by  millions  and  the  idle  '^apltal  of 
the  country  has  been  counted  by  bil- 
lions of  dollars.  If  the  future  is  like 
the  past,  similar  periods  of  misery  and 
financial  loss  will  recui-  from  time  to 
time.  The  work  of  the  Unemployment 
Conference  is  not  complete  until  it 
has  provided  for  a  thorough  study  of 
the  problem  whether  we  are  helpless 
to  prevent  the  periodical  recurrence 
of  such  times;  whether  we  cannot 
at  least  reduce  their  intensity  and 
duration. 

The  best  method  of  handli  ,  this 
problem  has  been  carefully  considered. 
Various  proposals  for  preventing  or 
mitigating  periods  of  widespread  un- 
«mp.oyment  have  been  suggested  to 
the  conference.  To  determine  what 
among  thear-  proposals  are  practicable, 
and  to  devise  methods  of  putting  the 
practicable  proposals  into  effect  will 
take  much  time  and  thought.  Ob- 
viously  the    whole   conference   cannot 


operating  at  a  loss  must  be  very  large. 
Unemployment  on  a  vast  scale  is  al- 
ways a  result  of  business  depressioi. 
The  problem  of  preventing  or  mitJ- 
gating  unemployment  is  therefore  part 
of  the  larger  problem  of  preventing 
or  mitigating  alternations  of  business 
activity  and  stagnation. 

Such  alterations  have  been  a  promi- 
nent feature  of  business  experience 
for  a  century  or  more  not  only  in  t?»o 
United  States  but  also  in  all  other 
countries  that  have  attained  a  hisjh 
state  of  commercial  organization. 
England,  Germany,  Austria,  and 
France;  Belgium,  Italy,  the  Nether- 
lands, and  the  Scandinavian  coun- 
tries; Australia,  Canada,  South  Africa, 
Chile,  and  the  Argentine;  in  recent 
years  Japan  and  British  India  have 
had  more  or  less  regular  cycles  of 
prosperity,  crises,  depression,  and  re- 
vival like  the  United  States.  The 
reverberations  of  these  disturbances 
in  the  chief  Powers  have  been  felt 
even  by  the  countries  in  a  less  ad- 
vanced stage  of  economic  develop- 
ment. The  "business  cycle"  is  a  world 
phenomenon.  It  is  not  to  be  treated 
as  a  specifically  American  problem  or 
as   one   of  passing  interest. 

These  international  aspects  of  the 
problem  have  an  important  bearing  on 
all  proposals  for  treatment.  Anything 
that  we  can  do  now  or  later  towards 
mitigating  business  depression  within 
our  own  borders  will  prove  advan- 
tageous to  all  the  countries  from 
which  we  buy  or  to  which  we  sell  or 
lend.  And  conversely,  the  dlflSculties 
confronting  American  business  will 
be  sensibly  lessened  by  the  recovery 
from  depression  of  any  of  the  coun- 
tries with  which  we  have  Important 
dealings. 

Control  Not  Impossible 

The  world-wide  scope  and  the  long 
succession  of  business  crises  do  not 
prove  that  the  problem  of  controllinji: 


spend   months    -n   making   the   neces-  ,  the  business  cycle   is  a  hopeless  one 


iry    investigations.      Instead    it    au 
thorized   the   chairman   to   appoint   a 
committee  to  see  this  work  done. 

Unemployment  as  Result  of  De- 
pression 

An  the  proposals  for  preventing  the 
recurrence  or  mltlgratlng  the  severity 
of  future  periods  of  unemployment 
recognized  that  the  problem  is  one  in 
which  the  interests  of  both  "capital" 
and  "labor"  are  Involved,  and  involved 
without  clashing.  The  vast  majority 
of  the  unemployed  were  recently  on 
the  jyayroUs  of  private  business  en- 
terprises. These  men  lost  their  jobs 
because  their  employers  were  losing 
money.  Over  15,000  business  enter- 
prises have  been  forced  into  bank- 
ruptcy since  the  present  period  of  de- 


On  the  contrary,  this  h  story,  when 
examined  in  detail,  prove.s  that  the 
problem  can  be  solved,  a-  least  in 
part.  For  the  leading  business  nations 
have  made  incontestable  progress 
towards  diminishing  the  violence  of 
business  crises-.  Each  step  In  this  di- 
rection has  re  ulted  from  a  wise  use 
of  lessons  drawn  ■  from  past  experi- 
ence. The  creation  of  the  Federal 
Reserve  System  is  a  notable  example 
of  American  achievertient  in  this  field. 
That  measure  prevented  the  crisis 
of  1920  from  defreneratine:  into  panic. 
Having  devised  a  method  of  mitigat- 
ing the  severity  of  crises  we  can 
w;th  good  prospects  of  success  turn 
our  constructive  efforts  to  the  further 
problem  of  mitigating  the  severity 
of  depressions. 

The  time  to  act   Is  before  a  crisis 
v>f"^  become  Inevitable, 


pi-eselon  began,  and  the  number  now      The   business  cyclj'  la  marked  by 


peak  peiiods  of  boom  between  valleys 
of  depression  and  unemployment.  The 
peak  periods  of  boom  are  times  of 
speculation,  over-expansion,  extrava- 
gance In  living,  relaxation  in  etfort. 
wasteful  expenditure  in  Industry  and 
commerce,  with  consequent  destruc- 
tion of  capital.  The  valleys  are  mark- 
ed by  business  stagnation,  unemploy- 
ment, and  suffering.  Both  of  these 
extremca^are  vicious,  and  tne  vices  ot 
the  one  beget  the  vices  of  the  other. 
It  is  tile  wastes,  the  misca'ctilations, 
and  the  maladjustments  grown  ram- 
pant dxiiing  booms  that  make  inevita- 
ble the  painful  process  of  liquidation. 
The  most  hopeful  way  to  «^heck  the 
losses  and  misery  of  depression  is 
therefore  to  check  the  feverish  ex- 
tremes of  "prosperity."  The  b^'st  time 
to  act  is  at  a  fairly  early  stage  la 
the  growth  of  the  boom. 

What  Can  Be  Controlled 

In  any  analysis  of  our  pmductlva 
processes  we  can  make  a  broad  dis- 
tinction between  our  additions  to 
naUonal  plant  and  equipment,  sucli 
as  houses,  railroads,  manufacture*, 
and  tools  on  one  hand,  and  the  con- 
sumable goods  which  we  produce  on 
the  other.  At  the  present  time  we 
increase  our  activities  in  both  of 
these  directions  at  the  same  time  and 
in  their  competition  with  each  other 
we  produce  our  booms. 

The  ebb  and  flow  in  the  demanil 
tor  consumable  goods  may  not  ba 
subpject  to  direct  control;  but  on  the 
other  hand,  it  should  be  possible  in 
some  measure  to  control  i),e  expan- 
sion of  the  national  plant  and  equip- 
ment. If  all  branches  of  our  public 
works  and  the  construction  work  of 
our  public  utilities— the  railwaya,  the 
telephones,  etc. — could  systematically 
tut  aside  financial  reserves  lo  be  pro- 
vided in  times  of  prosperity  for  the 
deliberate  purpose  of  improvement 
and  expansion  in  times  of  depres- 
sions, we  would  not  only  gieatly  de- 
crease ihe  dejth  of  depression,  but 
we  would  at  the  same  time  diminish 
the  height  of  booms.  We  would  in 
tact  abolish  acute  unemployment  and 
wasteful  extravagance.  For  a  rough 
calculation  Indicates  that  if  we  main- 
tained a  re.-erve  of  but  100  per  cent  of 
our  average  annual  construction  for 
this  purnof.'  we  could  almost  Iron  out 
the  fluctuations  in  employment 

Nor  is  this  plan  financially  Imprao- 
ticable.  Under  it  our  plant  and  equip- 
ment would  bi  built  in  tlmen  «f  lower 
costs  than  is  now  the  case,  when  the 
contractor  competes  with  consumable 
pood  in  overbidding  for  both  material 
and  labor. 

The  subject  is  one  of  the  most  pro- 
found national  importance,  and  is  at 
least  one  direction  in  which  a  balance 
wheel  could  be  erected  that  would  tend 
to  maintain  an  even  level  of  employ- 
ment and  business  The  action  of 
the  States  of  Pennsylvania  and  Cali- 
fornia In  making  a  provision  for  the 
control  of  public  works  to  this  end 
Is  one  of  the  most  interesting  and 
important  economic  experiments  in  the 
country. 

DaU  Needed  to  Direct  Control 
In  order  to  guide  such  a  policy  tt 


I 


THE    BUSINESS   CYCLE 


^-' 


^4 


\ 


\ 


\ 


ts 


> 


17 


i«  fundamental  that  an  accurate  statis- 
tical service  be  organized  for  deter- 
mining the  volume  of  production  of 
stocks  and  consumption  of  commodi- 
ties, and  the  volume  of  construction 
in  progre^  thrgugh  the  nation,  and 
an  accurate  return  of  the  actual  and 
not  theoretical  unemployment.  These 
•ervices  are  now  partially  carried  on 
in  the  different  Government  depart- 
ments. 

Such  statistical  service  would  in  it- 
self contribute  to  minimizing  the 
peaks  and  valleys  in  the  economic 
curve.  The  same  warnings  that  would 
•nable  intelligent  action  on  the  part 
of  public  authoiities  and  those  who 
control  large  enterprises  in  guidance 
as  to  the  periods  in  which  construc- 
tion should  be  deferred  or  should  be 
initiated  would  also  serve  as  a  warn- 
ing to  the  commercial  public  and 
would  tend  in  themselves  to  effect  the 
ends  desired.  As  a  first  step  in  such 
a  programme,  statistical  service  ade- 
quate to  this  purpose   should  be  im- 


mediately authorized  and  carried  out 
by  the  Federal  Government. 

The  committee  charged  with  the  fol- 
lowing up  of  the  work  of  the  unem- 
ployment conference  will  have  to  con- 
sider other  plans  that  have  been  put 
before  the  conference  with  the  in- 
dorsement of  various  bodies,  such,  for 
example,  as  the  "Hubcr  Unemploy- 
ment Prevention  bill"  now  pending 
in  the  Wisconsin  Legislature,  the 
schemes  for  insuring  a  minimum  re- 
turn to  lean  years  to  botJi  capital  and 
labor  with  which  certain  corporations 
are  experimenting,  and  the  out-of- 
work  benefits  of  trade  unions.  Vari- 
ous reforms  of  the  banking  and  mone- 
tary systems  nlso  have  warm  advo- 
cates— centralized  banking,  stabilizing 
the  dollar,  raising  discount  rates 
earlier  or  more  rapidly  in  periods  of 
pro<:perity.  and  the  like. 

All  these  topics  and  perhaps  others 
unknown  to  the  conference  might  be 
taken  up  by  the  propospd  Committee 
on    the   Prevention    of   Unemployment 


or  left  alone,  according  as  the  com- 
mittee saw  or  did  not  see  a  prospect 
of  rendering  service  by  an  investiga> 
tion.  Certainly  the  committee  should 
not  be  burdened  with  the  duty  of  In- 
vestigating every  proposal  that  haa 
been  or  may  be  made  for  the  accom- 
plishment of  its  object.  On  the  con- 
trary, the  committee  should  have 
power  to  limit  its  investigations 
strictly  to  those  plans  whose  merit 
and  defects  it  is  able  to  determine  with 
the  means  in  hand. 

A  report  from  such  a  commltte* 
prepared  after  due  deliberation,  la 
necessary  to  follow  out  and  render 
effective  the  emergency  work  of  tha 
President's  Unemployment  Confer- 
ence. For  no  constructive  programme 
of  preventing  the  recurrence  of  pe- 
riods of  widespread  unemployment  la 
likely  to  succeed  unless  it  is  based  up- 
on thorough  investigation  of  the  un- 
derlying facts  and  a  matured  judgment 
on  the  merits  and  defects  of  the  pro- 
posals submitted  to  the  conference. 


October  26 


Lessons  Learned;  Business  Cycle 

Guides  One  Firm  Through  Crisis 

American    Radiator    Co.    Successfully    Lessens    Trade 

Depressions 


By  Clarence  M.  Woollcy 

PrwMtat  of  tb«  American  Radiator  Company 
A  knowledge  of  the  principles  and 
theory  of  the  business  cycle  extend- 
ing over  a  period  of  nearly  thirty 
years  and   a  practical   application   oT 

the  theorj'  to  the  affairs  of  the  Ameri- 
can Radiator  Company  for  more  than 
twenty  years  have  convinced  me  that 
there  could  be  no  greater  boon  to  the 
American  business  man  and  the  Amer- 
ican business  community  than  a  wide 
diffusion  of  knowledge  of  the  fact  oj 
the  business  cycle  and  a  general  ap- 
plication of  that  knowledge  to  busi- 
ness management. 

During   the    last    twenty    years    tb*. 

American      Radiator      Company      hi> 

weathered  several  periods  of  busin^-ss 

d«pi<isslon    and    one    sevtre    panic- 

1907 — and  in  the  midst  of  Uie  pre.sen* 

depression   is   having   the   biggest   full 

season  in  its  history.     Its  growth  has 

been  constant.    We  atti-ibute  these  rf^- 

"  suits  in  principal  measure  to  our  hav- 

'    ing    consciously    operated    under    the 

principles  of  the  business  cycle.     We 

chart    business    and    financial    condi- 

tiona,  keep  our  charts  up  to  date,  and 

make  plans  and  conduct  our  business 

according  to   the   situation    as   shown 

by  interpretations,  of  these  charts. 

Liet  me  illustrate  by  examples. 

To    go    back    to   the    beginning,    we 

first  became  Interested  In   the  theory 

[    of  the  business  cycle  after  the  panic 

I    of   18»8.     Study  convinced    us   that   it 

was  more   than  a   theory.     It  was    i 

fact.     We  noted  the  technique  of  the 

Marshall     Fields,     Andrew    Carnegies 

and  others  who  did  their  big  build- 


ing immediately  following  panics. 
Our  company  slowly  developed  a 
scheme  of  working  under  the  prin- 
ciples of  the  business  cycle,  and  by 
1S99  we  had  put  into  off  ct  a  system 
of  charting  from  the  available  statis- 
tics of  business  and  financial  move- 
ments. 

Pig  iron  is  one  of  the  chief  elements 
of  our  finislK'd  proditrl.  in  August, 
1I'07,  our  charts  showed  iis  that  tb  ' 
price  of  pig  iron  hrtd  liscn  from  ■. 
low  point  of  approximately  $lo  a  tor 
in  1904  to  a  little  over  ?2«  a  ton.  In- 
terest rates  had  also  ri.  rn  to  a  pro- 
hibitive point  and  tlic  general  price 
structure  was  up  in  the  clouds. 

At  a  meeting  of  our  lioard  of  di- 
rectors August  2.  190T,  we  took  ac- 
count of  these  facts  that  cur  charts 
showed  us  .'^o  gryphically  and  decided 
that  we  would  s'  ^  our  liouse  in  order 
for  the  coming-  storm.  For  it  was 
j  plain  to  us  from  our  cha -ts  that  in- 
'■  flation  had  gone  to  sucn  an  extent 
'  that  a  panic  wa.s  imminent.  The 
banking  system  of  that  period,  lack- 
ing the  cspntial  cl'^mcn*  of  elasticity, 
was  rapidly  reaching  the  breaking 
point.  It  was  ol.vl'ui.s  ih  it  the  credit 
burden  was  soon  to  bee  me  dispi-o- 
portionate  to  the  ability  of  that  system 
to  stand  tlie  strain. 

We  proceeded  immediately  to  liqui- 
date our  Inventories,  cut  d  wn  produc- 
tion, pay  our  risbts  and  buy  only  on  a 
day-to-day  basis.  The  panic  came  in 
October,  three  months  isftcr  we  had 
been  able  to  predict  it.  The  end  of 
Che  year  found  us  with  out  debts  pjiid 
and  our  inventories  relieved  of  the 
load  of  high  cost  material.  We  not 
only  came  through  the  storm,  but  w© 


were  ready  to  take  advantage  of  tha 
first  signs  of  revival  and  to  help  in© 
revival  along.  And  if  the  number  of 
business  concerns  employing  thl» 
method  of  stabilization  can  be  in 
creased  it  will  check  the  dangerous 
peak  of  supposed  prosperity  and  les- 

^^"i  J^®  J*"*^^^*^  <^P  i"to  depression. 

After  the  1907  panic  pig  iron  went 
down  to  $14  a  ton  and  remained  sub- 
f  intially  at  that  figure  until  early  in 
^^o.  The  war  had  come  on  In  the 
meantime,  bringing  depression  with 
It.  People  were  saying  that  the  de- 
pression would  last  indefinitely  -t 
least  for  the  period  of  the  war.  The 
iron  and  steel  business  was  esoe- 
nally  hard  hit.  But  our  charts  showed 
us  that,  although  the  price  of  pig  iron 
leniamed  stationary,  nroductlon  was 
increasing.  In  other  words,  in  the 
face  of  the  pessimistic  prophecies  tha 
demand  was  growing. 

Time  to  Buy  for  the  Rise 

We  decided  that  then  was  the  tJma 
to  buy  pig  iron.  In  February.  1915, 
we  converted  a  large  part  of  our  cash 
reserves  into  a  pig  iron  reserve,  Wa 
bought  pig  iron  and  stored  It  Two 
weeks  after  we  had  made  our  con- 
tracts the  price  of  pig  iron  Jumped 
oO  cents  a  ton  and  from  then  on  It 
advanced  steadily  until  it  reached  |5S 
a  ton.  We  bought  in  the  market  for 
our  day-to-day  needs,  only  nibbling 
at  our  reserve.''  until  the  price  reached 
$44  a  ton.  when  we  began  using  our 
reserve   stock. 

When  America  entered  the  war  and 
the  Government  controlled  certain 
commodity  prices   pig  Iron  went  tMck 


I. 


u 


THE    BUSlSESS  <:YaLE 


THE    BUSINESS   C5YCLB 


>  . 


t»^'9M  &  ton,  when  it  etood  when 
GofTiniment  control  ended.  After  the 
Ckrvarmnent  ceased  price  control,  pig 
iron  went  down  to  $26.75,  and  then 
up  Again  until  it  stood  at  the  general 
(•▼•I  et  $46  a  ton  in  July.  1920.  We 
knew  of  Instances  in  which  bonuses 
brought  the  price  up  to  $56  a  ton,  but 
oar  charts  showed  the  general  level  of 
Sit  &  ton.  At  the  same  time  we  saw 
interest  rates  at  8^,  9,  and  10  per 
oent,  and  prices  generally  greatly  in- 


Once  more  our  directors  decided 
that  depression  was  in  sight.  Once 
more  we  liquidated  our  inventories. 
paid  omr  debts,  cut  down  production. 
and  got  ready  for  the  storm.  We  had 
come  by  experience  which  brought 
anderstandlng  to  place,  implicit  re- 
)isttce  upon  our  ability  accurately  tc 
ferecaat  the  logical  trend,  of  finance 
and  bualneae  by  skilful  inter  pr  eta - 
tloaa  of  our  economic  charts.  The 
busfness  cycle  was  no  longer  a 
theory.  It  became  for  us  a  veritable 
compass  to  guide  us  through  the 
gathering  mists   of  depression. 

Now  we  come  to  1921.  At  the  be- 
ginning of  this  year  our  charts  showed 
-lis  a  large  Increase  in  the  number  of 
building  permits  issued.  Oetailed 
statistics  showed  that  the  vast  ma- 
jority of  those  permits  was  for  small 
heuMS.  Other  charts  showed  the  prices 
of  bonding  materials  declining.  At  the 
same  time  interest  rates  were  coming 
down. 

We  decided  that  it  was  to  be  a 
moderately  prosperous  year  foi-  u.s.  it 
wae  time  for  us  to  expand.  We  made 
a  satisfactory  adjustment  of  wages 
with  our  workmen,  opened  up  our 
factories.  Increased  production,  made 
a  Ug  reduction  in  selling  prices,  and 
while  the  first  six  months  were  be- 
low normal,  the  last  half  will  be  the 
largest  of  record.  Our  order  books  are 
now  crowded  with  unfllled  orders,  giv. 
iBg  the  necessary  l>ack  log  for  uninter- 


rupted productk)n  throughout  the 
winter. 

These  example*  all  show  the  advan- 
tage not  only  ^of  understanding,  but 
aprwying  practically  the  prmciplea  of 
the  business  cycle.  There  are  many 
business  men  who  say  the  business 
cycle  is  an  interesting  theory,  but 
falls  in  the  effort  of  practical  applica- 
tion. The  experience  of  this  company 
has  proved  that  the  principles  of  the 
business  cycle  can  be  applied  to  the 
practical  management  of  business. 
Under  our  old  banking  conditions  it 
was  possible  to  forecast  a  coming  panic 
or  deprf«sion  from  three  to  four 
months  in  advance,  while  under  the 
Federal  Reserve  system  such  changes 
can  be  forecast  from  six  to  eight 
months  In  advance.  The  revival  can 
also  be  foreseen,  for  your  charts  keep 
you  accurately  informed  of  the  trend 
of  economic  movements. 

Eugene  Meyer  said  the  other  day  in 
Washington:  "Pessimism  always  fol- 
lows, it  does  not  precede,  a  panic." 
The  condition  ought  to  he  just  the  re- 
verse. The  time  for  pessimism  Ls  just 
before  the  peak,  when  pvices  are  In- 
flated and  money  i.<?  high.  For  the  in- 
formed man  then  l<nows  that  depres- 
sion and  hard  times,  if  not  panic,  are 
bound  to  come.  And  the  time  for 
optimism  is  when  prices  are  down  and 
hard  times  a»e  with  \js.  For  iti  the 
final  analysis  those  are  the  conditions 
that  breed  prosperity. 

Ther*!  \s  one  thinir,  however,  that 
I  would  like  to  emphasize,  and  that 
is  that  statistics,  to  be  of  use,  must 
be  studied,  digested,  and  compre- 
hended. They  must  be  read  in  con- 
nection with  all  their  modifyln.:,'  fac- 
tors. There  is  nothing  more  danger- 
ous for  the  average  man  than  undi- 
gested statistics.  But  piven  complete 
and  accurate  statistics  •'  Moughly  un- 
derstood, and  th.  psy(l.(;i(;;iieal  factor, 
Bc  much  insisted  upon  us  taking  th;? 
value  out  of  et.itistical  calculations 
and  forecasts,  can  be  discarded.     Tha 


effect   of   the   psychological   factor   is 
contained  in  the  etatistics. 

Every  Business  Different 

Every  business  ha«  its  peculiaiities. 
Every  business  man  will  need  his  own 
statiEtics  and  his  own  set  of  charts 
to  gtiide  him.  T  don't  mean  he  will 
need  statistics  that  he  gathers  him-' 
self  but  particular  sets  of  statisticM. 
that  he  can  get  from  recognized 
sources,  and  upon  them,  after  careful 
study,  he  will  base  his  judgments. 

In  this  company  we  lean  with  par- 
ticular weight  on  our  charts  of  pig 
iron  pricee.  building  material  prices, 
building  permits,  interest  rates,  and 
striites  in  the  building  trades.  In  1920 
it  was  not  the  price  of  pig  Iron  alone 
on  which  we  formed  our  opinion  that 
h.  depression  was  close  at  han«l>  but 
the  price  of  pig  iron  in  connection 
with  the  interest  rates. 

Another  business  would  need  a  dif- 
ferent variety  of  statistical  Informa- 
tion, but  all  bu?!nesa  must  follow  tht 
Interest  raU-'».  The  price  of  money 
has  a  div»ci  bearing  at  all  times  on 
the  »>uim^ss  situation.  Wlien  Iiiteresc 
rate..^  get  too  high  the  flag  is  up  sig- 
nalling a  depression  under  was'. 

A I  the  present  moment,  in  my 
opinion,  the  business  revival  has 
starred,  althougli  deflation  has  not 
quite  tun  its  course.  Money  is  too 
high  for  developmental  purposes.  In- 
come taxes,  especially  in  the  upper 
brackets,  tend  to  sap  the  sources  of 
normal  growth.  Railro«d  rates  are 
too  high.  Transportation  costs  are 
decisive  price  factors  in  most  of  the 
key  industries.  Progress  thus  far  is 
largely  due  to  concession.  Some  con- 
tributions to  the  common  purpose  are 
yet  to  be  made  by  labor  as  well  as 
by  t  apital,  before  genersl  business 
currents  reach  a  normal  flow  in  the 
revival  now  in  the  initial  stage  of 
de\ciopment. 


Wrong  Ideas  Must  Be  Liquidated 


By  M.  C.  Rorly 

▼tee-PrandMit    Bell    Telephone    Seruriries 
Compaoy 

No  one  who  surveys  the  events  of 
the  last  fifteen  years  can  question  the 
importance  of  developing  all  possible 
antidotes  and  correctives  for  business 
depression.  However,  the  antidote 
that  perhaps  is  needed  most  of  all  :s 
an  antidote  for  over-optimism  with 
respect  to  what  may  be  done. 

It  may  be  comparatively  easy  to 
aaeemble  the  facts  and  principles 
which  will  enable  Intelligent  executives 
and 'business  organizations  to  discount. 
and  therefore  to  minimize  for  them- 
selTes.  the  effects  of  periods  of  busi- 
QSM  Inflation  and  depression.  To 
some  extent  this  gradual  education  of 
individual  business  organizations  may 
react  on  business  as  a  whole.  But 
thoae  who  hope  that  eJl  business  or- 
ganizations and  all  the  people  can 
quickly  be  brought  to  a  realization  of 
the  fixings  that  must  be  done  and  left 


undone  in  order  to  avoid  extreme  vaj'i- 
ations  in  business  activity  are  \ery 
surel.v  doomed  to  disappointment 

If  bu,''iness  depressions  had  only  vo 
bring  about  liquidations  of  business 
conditions  the  problem  would  be  sim- 
ple. The  groat  difficulty  lies  in  rhe 
tact  thar  business  depressi'Ji's  are  ver.v 
frequently  calleil  upon  lo  liqindatr 
idean — and  ideas  in  ilie  form  of  eco- 
nomic fallacies  are  most  refractory 
ones  and  yield  with  extreme  reluc- 
tance to  the  smeltina-  of  fact?  and 
experience. 

X  busines.s  depression  is  fundament- 
ally an  illness  brought  about  by  a 
combination  of  business  excesses  and 
economic  diseases.  It  very  rarely  is 
the  result  of  »  single  cause.  The 
immediate  crisis  ordinarily  results 
from  over-expansion,  but  when  the 
proce-ss  of  re.-overy  sets  in  it  \^  usu- 
ally found  tfiat  there  are  numerous 
ivinks  and  defects  in  the  business  and 
f^conomic  structure  that  must  be 
cleared  up  befo  e  convalescence  can 
be  complete. 

Studies   of   the    business   cycle   have 


to-day    progressed    to    a    point    where 
tlieif    is  substantial   agreement  as   to 
maii.v     of     the    principles    that    must 
govern   in   maintaining  business   on   a 
reasonably   even   keel   and    in   hasten- 
ing I  ccovery  whenever  an  unavoidable 
j  crisis  comes.     The  difficulty  is  net   in 
I  pre8(  ribing   adequate  remedies,  but  in 
'  prf-\ai]ing    upon    the   patient    to    take 
the  medicine. 

The   first  i-equirement    indicated    by 

these  studies  is  that  the  txpansion  of 

bank    loans    shall   be  checked    at    the 

point    where   proper    business  activity 

begins  to  run  wild  into  inflation.      A 

sound  application  of  the  principles  on 

whi^  h     the     Federal    Reserve    system 

is     based     requires     that     this     check 

shall   be  applied  through    increases   in 

infeiest    rates,     it    must     always    b« 

possible  to  borrow  on  proper  securit-v 

I  at  a  price,  but  this  price  must  become 

;  high   to  all  borrowers  alike  when  the 

j  point   of  inflation  is  approached. 

Our  present  banking  system  is  abso- 
lutely free  to  operate  as  a  banking 
syetem  in  the  hands  of  trained  bank 


1 


.    ^ 


. 


t ' 


ers  and  in  such  hands  we  have  rea- 
sonable assurance  that  any  renewed 
tendency  toward  over-inflation  in  the 
next  two  or  three  years  will  be 
checked  l)efore  .serious  harm  is  done. 
It  is  to  be  hoped  that  the  new  bank- 
ing system  has  already  acquired  suffi- 
cient stability  and  public  confidence  to 
withstand  the  pressure  of  politics  and 
demand  for  the  dispensing  of  special 
favors  to  those  interests  which  for 
the  time  being  have  political  power. 
Will  even  the  business  men,  who 
should  insist  on  high  rediscount  rates 
when  inflation  approaches,  welcome 
such  rates  when  they  are  actually  im- 
posed? Will  there  not  be  charges 
from  farmer  and  merchant  alike  that 
the  bankers  are  falsely  prophesying 
the  approach  of  a  crisis  in  order  to 
have  an  excuse  for  increasing  their 
own  profits? 

Effect  of  Abnormal  Factors 
Another  thing  indicated  by  studies 
of  the  business  cycle  is  that  abnor- 
malities in  the  prices  of  commodities 
and  services,  which  may  not  seem  of 
great  importance  during  a  period  of 
inflation,  may  nevertheless  interfere 
very  seriously  withwthe  process  of  re- 
covery after  a  crisis.  At  th.e  present 
time  there  is  general  belief  that  busi- 
ness might  be  greatly  stimulated  if 
building  costs  and  freight  rates  could 


be  brought  more  nearly  into  line  with 
the  general  price  level.  However,  in 
the  case  of  the  building  trades  there  is 
evidence  of  a  variety  of  monopolies 
and  semi-monopolies  in  building  sup- 
plies and  materials;  while  both  build- 
ing costs  and  railroad  freights  are  af- 
fected by  the  unwillingness  of  power- 
ful labor  unions  to  surrender  recent 
increases  in  real  wages. 

It  is  not  necessary  to  express  an 
opinion  as  to  the  merits  of  either 
controversy.  The  essential  point  is 
that  the  pessimistic  student  of  the 
Ijusiness  cycle  seizes  upon  these  facts 
as  reasons  for  ills  belief  that  control 
over  business  depression  will  be  slow 
ly  and  painfully  established.  He 
claims  that  a  sustained  normal  busi- 
ness activity,  brought  about  throug.'i 
an  intelligent  control  of  bank  credits, 
would  tend  to  invite  the  building  up 
of  dangerous  business  and  labor 
monopolies.  He  contends  that  periodic 
business  depressions  afford  the  only 
safeguard  against  such  business  ossi- 
fication, and  that  occasional  depres- 
sion is  preferable  to  permanent  ossi- 
fication. 

Work  for  the  Fcrseeing  Optiniist 

When  it  comes  to  relief  measures 
the  pessimist  also  has  his  fling.  He 
points  with  pessimistic  glee  to  the 
present  attempt  to  maintain  exports 
and  secure  payment  of  foreign  obliga- 


tions to  this  country,  while  at  tbo 
same  time  blocking  imports  by  ex- 
treme advances  in  tariffs.  He  is  not 
hostile  to  emergency  relief  work,  but 
he  asks  whether  there  will  ever  be  a 
j  general  public  acceptance  of  the  eco- 
I  nomic  necessity  for  requiring  a  ftill 
day's  service  on  such  relief  work  for 
something  distinctly  less  than  the 
market  wage. 

The  writer  is  himself  an  optimist, 
rather  than  a  pessimist,  regarding  the 
possibility  of  securing  a  more  evenly 
sustained  business  and  industrial 
activity.  He  has  infinite  faith  in  the. 
ability  of  the  mass  of  the  American 
people  to  comprehend  fundamental 
economic  truths  and  in  their  willing- 
ness to  submit  themselves  to  the  re- 
straints that  will  be  necessary  If 
future  business  depressions  are  to  be 
minimized.  However,  the  working  out 
of  the  solution  will  not  lie  with  either 
the  pessimist  or  tlie  enthusiast  of  a 
day  or  a  year.  It  is  a  problem  for  the 
farseeing,  patient,  and  public-spirited 
optimist  who  can  be  satisfied  to  seek 
his  results  in  the  next  generation  If 
they  cannot  be  obtained  in  this.  This 
does  not  mean  that  all  progress  will 
be  postponed  to  the  next  generation. 
Much  will  be  gained  if  the  present  de- 
pression brings  home  to  a  substantial 
number  of  business  men  the  real 
nature  of  the  business  cycle  and  the 
importance  of  advance  preparation 
the  inevitable  swings. 


Ocloher  27 


Labor  Experiences  "The  Cycle" 


By  Leo  Wolman- 


tf' 


Chief  ol  rtesearch  Department,  Amalgamated  Clothing:  Workers  of  America. 

Workers  know  no  more  about  the  facts  of  depression  and  the  business 
eycle  than  does  the  average  business  man.  What  they  think  and  feel  aboat 
a  depression  is  the  result  of  their  own  personal  and  immediate  experience 
with  it.  They  know  it  as  a  period  in  which  they  are  out  of  work  and  are 
thrown  upon  their  own  slender  resources.  They  know  it  as  a  time  wh:in 
their  wages  are  slashed,  so  that  even  when  they  do  work  they  earn  less 
than  they  did  before.  They  see  millions  of  their  fellows,  yesterday  pros- 
perous, to-day  on  the  verge  of  distress  and  misery.  Attempts  to  mitigate 
their  suffering  they  regard  as  weak,  half-hearted  and  largely  ineffectual. 
Out  of  a  set  of  experiences  and  observations  of  this  kind  grow  whatever 
attitudes  towards  depressions  workers  may  have. 

Their  reactions  are  moreover  not*- 
the  product  of  hallucinations,  but  usu- 
ally of  the  facts  as  they  see  them. 
Every  one  familiar  with  the  history 
of  the  present  depression  will  remem- 
ber how  it  was  ushered  in  with  vague 


threats  of  bread  lines  and  union 
busting  campaigns  that  would  soon 
teach  labor  its  proper  place  in  the 
world,  unemployment  was  in  many 
quarters  ever  hailed  as  a  godsend, 
since  it  would  be  the  means  of  re- 
ducing labor  to  impotence.  Whether 
deliberate  or  not,  open  shop  move- 
ments found  their  points  of  departure 
and  took  on  fresh  impetus  not  in  the 
periods  of  business  activity,  but  dur- 
ing the  depression.  The  agitations  to 
protect  the  rights  of  the  non-union 
workers    against    the    aggressions    of 


periods  of  business  lull  and  inactivity. 
In  fact,  almost  every  type  of  activity, 
designed  to  weaken  the  position  of 
either  organized  groups  of  workers 
or  of  individual  workingmen  becomes 
strong  and  successful  only  when  bus^i- 
ness  is  bad  and  people  are  out  of 
work. 

Labor's  Condition  Follows  the  Cycle 

A  chart   based  on   the  statistics  of 

trade    union    membership    will    show 

that  the  rise  and  fall  of  trade  union 

strength  Is  in  almost  complete  agree- 
ment with  changes  in  the  business 
cycle.  In  the  90's,  in  1907-08,  in  1914, 
and  again  in  1920-31  the  membership 
of  American  trade  unions  has  dropped 


workers  agamsi  ine  aggressions  oi  or  American  iraue  unioiia  nas  uxopptru 
the  organized  are,  as  a  matter  of  his-  in  response  to  changes  in  business 
tory,  phenomena   largely  peculiar   to  1  conditions.      The  drop  has  never,  to 


be  sure,  been  as  great  as  the  rise,  btlt 
it  has  always  been  substantial.  It 
would  be  no  exaggeration  to  estimate 
the  fall  in  trade  union  membership 
since  the  beginning  of  the  present 
depression  at  a  figure  approaching 
1.000,000  members.     Some  of  this  drop 

is  no  doubt  due  to  such  causes  as  the 
inability  of  people  to  pay  dues  or  to 
their  leaving  the  Industry.  But  most 
of  it  comes,  as  a  study  of  the  figures 
clearly  shows,  in  those  places  where 
business  men  have  deliberately  en- 
gaged in  the  task  of  destroying 
unions.  These  facts  every  workman 
knows,  if  not  in  the  large,  at  least  ia 
his  own  shop  or  in  his  own  industry. 
Wherever  he  knows  them,  much  haa 
been  accomplished  thereby  to  pre- 
vent him  from  being  a  sweet  and  rea- 
sonable person,  ready  to  discuss  wage 
adjustment  and  liquidation  in  a  ra^ 
tionai   and  impersonal   manner. 

Much  the  same  kind  of  factiB  com- 
bine to  determine  the  position  of  the 
worker  toward  the  adjustment  of 
wages  in  periods  of  falling  prices.  Im 
spite  of  the  spectacular  rise  in  prices 
and  wages  after  1916  and  the  resist- 
ance of  organized  and  unorganized 
workers  to  wage  reductions  during  the 
last  two  years,  the  probability  is  that 
the  great  mass  of  working  men  and 
women  in  the  country  have  lost 
heavily  in  the  process  of  readjustment. 
The  loss,  moreover,  is  not  a  temporary 
one,  limited  to  the  period  of  actual  de- 
pression when  profits  are  low  and  the 
volume  of  business  is  falling,  but  It  be- 
comes permanent  and  is  extended  to 
the  period  of  business  activity  which 


A 


THE    BUSINESS    CYOr.E 


alwaya  follow*  the  deprcMion.  A  re- 
Mnt  and  highly  authoritative  «tudy 
¥y  Paul  Douslas  and  Frances  Lam- 
bei'son  of  the  course  of  wages  in  this 
country  from  1S90  to  iJlg  shows  that 
the  employees  in  a  group  of  basic  and 
representative  industries  were  heavy 
leaers  in  this  whole  period.  Speclflcally 
these  investigators  find  that  "the  pur- 
ehasinir  power  of  an  hour's  wages 
was  20.7  per  cent  less  in  191 S  than  it 
had  been  during  the  years  1890-99,  and 
that  the  purchasing  power  of  full-time 
weekly  earnings  was  29.6  per  cent  lees 
than  durins  this  period."  For  the  two 
yeara  following  1918,  wages,  of  course, 
rose  very  rapidly.  But  people  are 
prone  to  forget  that  these  same  two 
years  were  characterized  by  one  of  the 
moat  Apeciacular  price-rises  in  the  Ms. 
toi-y  of  the  country.  While  the  full 
data  are  not  available  an  examination 
•f  sampler  here  ana  there  leads  to  the 
conclusion  that  the  relative  status  of 
workei's  was  little  better  at  the  peak 
of  prices  in  1929  than  ic  nad  been  in 
1918.  These  are  the  conclusions 
drawn,  moreovei*.  not  from  abstract 
speculation,  but  from  fhe  scientific 
analysis  of  the  available  facts. 


With  the  collapse  of  business  in 
1920  came  the  wave  of  wage  adjust- 
ment. At  first  progress  was  slow. 
Attempts  to  reduce  wages  met  wjth 
vigorous  lesiatance  which  was  fre- 
quently successful.  Public  announce- 
ments by  business  leaders  in  many  In 
dustries  defended  proposed  wage  re- 
diictions  by  pointing  to  the  fall  in  the 
cost  of  iivingr  and  by  indicating  their 
intention  of  maintaining  a  parity  be- 
tween the  wage  level  and  the  purchas- 
ing power  of  the  dollar.  Soon,  how- 
ever, the  situation  changed.  The 
volume  of  unemployment  grew.  The 
position  of  ti'ade  unions  became 
weaker.  The  co.«".t  of  living  as  a 
standard  of  adjustment  was  discarded. 
And  industry  after  industry,  either 
directly  or  indirectly,  put  into  eCCect 
wage  reductions  out  of  all  proportion 
to  any  drop  in  the  cost  of  living.  The 
effects  of  this  practice  are  clear.  In 
the  first  place,  the  weak  and  unorgan- 
ized workers  are  thrown  back  on  a 
standard  of  living  even  below  that 
which  they  enjoyed  before  the  war. 
Whereas     the    strong     and     organized 


groups,  obeerving  the  experience  of 
the  others,  are  stiffening  thei-  resist- 
ance and  are  conceding  wag*  reduc- 
tions only  where  reduction  Is  shown 
to  be    itiiavoidable. 

Aside  from  the  merits,  then,  ef 
particular  demands  for  wage  adjust- 
ments, the  facts  seem  to  point  to  thf 
use  of  (he  depre.ssion  by  business  men 
for  pin  poses  other  than  those  of  legiti- 
mate liiisincss  i-eadjustment,  As  Ion? 
as  this  continues  to  be  the  case,  the 
country  may  look  forward  to  the  repe- 
tition of  those  gi-eat  industrial  battles 
which  make  industrial  depressions 
even  more  disastrous  than  they  would 
otherwise  he.  That  this  need  not  be 
the  case  is  shown  by  the  expeilcnce  in 
many  industries  in  which  self-respect- 
ing employers  work  openly  and  above 
board  and  on  even  terms  with  self- 
respecting  employees.  In  such  case«. 
too,  theie  have  been  difficultiea.  But 
the  instances  of  successful,  effective, 
and  peaceful  adjustment  in  these  dilfl- 
cult  times  are  frequent  enough  f» 
recommend  this  method  to  those  em- 
ployers who  have  tried  the  cithers  and 
have  found  thorn  wanting. 


October  28 


Business  at  Crest  and  Trough 


H.  S.  Dennison,  president  of  the  Dennison  Manufacturing  Company, 
•ketched  with  a  pencil  the  wave  and  the  trough  of  a  typical  business  cycle 
and  dotted  in  the  lines  representing  both  what  would  be  desirable  and  whft 
would  be  practically  possible  in  the  modification  of  the  extremes  of  in- 
flation and  depression  if  business  had  the  knowledge  and  the  foresight  to 
adopt  the  proper  measures. 

"Whether  or  not  it  would  be  desirable,"  he  said,  "to  flatten  out  th3 
line  of  business  activity  to  the  straight  line  of  growth— -I  am  inclined  to 
think  it  would  be  undesirable  to  do  so — it  certainly  is  impossible  to  do  It. 
However  that  may  be,  it  is  not  the  wave  itself  but  the  breaking  crest  of 
the  wave  that  does  the  damage.  We  should  therefore  focus  our  attention 
upon  the  crest  and  try  to  discover  and  apply  measures  which  we  may  rea- 
aonably  expect  to  modify  it. 

"The  crest  of  the  wave  is  due  to* 
the  widespread  belief  in  the  «ontin- 
uance  of  the  rate  of  expansion  of  the 
counti'y  and  its  business,  which  i»  too 
gTeat  to  be  maintained  and  as.'simi- 
lated.  Over-estimates  in  this  regaid, 
ever-eatimates  in  the  individual  en- 
terprise of  requirements  and  of  futute 
pricee,  lead  to  over-exienaion  of  plant, 
•ver-pui'chases  of  raw  materials  an  1 
merch^ttlise :    increasing   si/e   and   ir- 


'.ison  Implied,  ■"what  we  have  ilon* 
ourselves:  what  hplpert  \o  put  our 
business  ill  a  position  lo  weather  the 
storm  when  it  canu--.  it  ha.s  been 
ley  'I  over  a  i  onsiderabif  pei  iod  an-i 
it  hf.  •  i.«iified  iisieif  in  our  c.\perien«e. 
"Our  pi-actice  follow.'*  a  policy  affect- 
ing our  conduct  of  production  and 
plant -developm»'nl.  oui  use  of  our  own 
♦tBciercv  in  labor  force  and  in  methods  j  credit  and  its  e.\ten.siun  lo  our  custo- 
•f  management,  and  over-st.ainin,i  mers.  our  pu.chase  of  raw  ma. aria's 
Of  credit  resources.  J'hese  effects  ap-  |  and  merchandise,  our  advertising 
ply  to  commerce,  Indus  ry,  iransporta- I  -The  policy  of  ot.r  purcha.<M's  de 
tion.  and  public  works.  !  p^.tment.  lor  example,   is  ba.^^ed   upon 


"Granting  all  this — ^and  nobody  wj]l 
dispute  it — what  can  the  individual 
business  man  do  in  the  management 
of  his  concern  to  flatten  out  the  line 
ef  expansion  and  depression  and 
reach,  if  not  your  dotted  line  of  'de- 
sirable' compromise,  at  l&«ist  something 
nearer  what  you  have  indicated  as 
•possible''" 

Information  the  Basis  of  Action 
"Well.  1  can  only  tell  you,"  Mr.  Den- 


recoids  showing  llf  swing  of  price, 
ovei-  a  long-  period  of  timo.  Except 
during  war?!  and  their  immedicife  after- 
math, these  records  of  prices  give 
workable  indications  o;  normal  piii-j 
levels.  Our  purchiiiins  agent  paya 
close  attention  not  to  the  extremes 
of  high  and  low.  but  to  the  normal;, 
and  the  relation  of  those  normul.s  lo 
profitable  business. 

"During    th»     crisis    and     the    earl.\ 
part    of    the    depression    that    follows. 


our  piuchases,  like  those  of  everybody 
else.  ,T|P  Trom  hand  to  mouth.'  With 
the  HiHi  sign.s  of  recovery  wc  begin 
to  'loost'n  up/  and  from  thai  lime  on 
as  long  a.s  prices  re'ua'n  well  below 
the  normal  line,  we  buy  i.iost  freely  if, 
proporlif.n  to  the  late  of  connuniption. 
.Ml  the  way  up  to  and  across  the  linr 
that  tepresents  what  we  h.Hve  found 
to  be  I  i  e  long  vvin  normal  of  prices 
of  out  material."  "sl.ick  limit.-^'  de- 
crease. .^I  some  price  well  above  th - 
normiil  x^  begin  to  siow  down  as  a 
matter  <.f  general  policy,  and  presently 
we  are  again  buying  only  from  han  i 
l(»  mouth. 

"Prices  may  .siill  be  mcreasing,  an  i 
»n  sonir  (jur<l>at,€s  Wr;  ma.v  lo.se  bv 
holdiii.s  lo  the  policy  ot  smaller  ctuan- 
(itie^  lor  uuniediate  needs.  Kut  wv 
have  ncvpi-  been  able  to  predict  ejcac^ 
I.)  ices  ;iud  our  e.vperit  nee  i«  that  we 
come  oMt  better  in  the  lone  run  bv 
oui-  more  conservative  policy  than  b\ 
bnyinR  heavily  up  to  soim'  'ncsLti 
price*  ;ii   wnich   we  c.4n  only  gui'ss. 

■Naturally,  with  regard  to  the  uem<? 
of  inosi  account  in  our  uarticular  line 
of  lju*inf\ss.  we  keep  ciosesl  watch 
upon  I  lie  special  inflvtenee.i  which 
-seem  lo  govern  the  general  trend 
r»nd  HuiitiAtions  of  those  special  mar- 
kets. With  them.  as.  in  fact,  with 
all  th"^  Icsaer  ones,  we  are  guided 
rathei  luan  siiackled  by  our  general 
purcha.siug  policy.  But  on  the  whole 
it  is  very  bioadly  lived  up  to.  It 
certainly  Justified  itself  last  year  by 
leaving  us  with  Ught  stocks  on  han-i 
of  aIniuifL  every  item  when  ih*  prices 
started   to  break. 

"What  business  needs  generally  in 
not  low.s  vigilance  on  the  part  of  in- 
dividti'il  concerns  as  to  the  spsciul 
conditions  affecting  particular  llne.-i. 
but  a  ^tl•y  mucli  larger  ^ni  nior«  de- 
tai  ed  body  of  information,  gathered 
widely    and    authoritatively,    and    dis- 


THE    BUSINESS    CYCLE 


n 


u 


,1   h 


\i    > 


VI 


I    ^ 


tributed  promptly  and  frequently,  re- 
garding: the  things  that  both  govern 
and  exhibit  the  currents  at  work  to 
bring  about  and  accelerate  or  retard 
the  fluctuations  of  the  business  cycle." 

"What  sort  of  information  would 
you  have  gathered  and  distributed?" 

'The  most  important  thing,  it  seems 
to  me.  Is  to  have  well  presented  and 
widely  distributed  by  some  agency  in 
which  we  could  have  absolute  confi- 
dence thoee  facts  which  would  help 
towards  correct  estimates  of  the  course 
of  sales  and  prices.  These  would  be 
at  least  the  followinjr: 

Statistics  of  inventories  and 
foods  on  order. 

Statletica  of  production  with  the 
ratio  to  production  capacity. 

Statistics  of  construction  be- 
gun and  under  way. 

Week:y  earnings  and  hours  by 
trades  and  establishments  with  the 
ratio  to  capacity. 

Employment  statistics. 

StaOstice  of  cost  fundamentals. 

Factors  affecting  probable  de- 
mand for  or  consumption  of 
specific  articles. 

"Remenber  that  while  consumption, 
especially  in  a  country  so  large  as 
ours,  and  with  a  constantly  rising 
standard  of  living,  ie  capable  of  In- 
definite ittcrcaac,  the  rate  of  increase 
cannot  be  indefinitely  speeded  up.  Nor 
can  expansion  either  exactly  foresee 
or  exactly  match  that  rate.  When- 
ever expansion  overtakes  or  materially 
exceeds  that  rate,  it  strains  the  whole 
structure,  and  we  are  due  for  a  tumble. 
Taking  the  cotintry  at  large,  and 
having  in  mind  the  'ultimate  con- 
sumer,* on  the  \ip  wave  we  are  stock- 
ing up.  On  the  down  wave  we  stop 
producin.^  and  arc  drawing  on  stock. 
That'*  the  story,  every  time." 

Here  Mr.  Dennison  reverted  lo  hi.s 
sketch  of  the  business  cycle. 

Measures  at  Peak  and  Trough 
*'Xow.  take  this  sketch,  and  note  tii"? 
points  at  which    1    have   put  arrows — 


•A"  and  'B.'  It  ia  to  the  froth  of 
speculation  at  the  top  of  up-wave 
and  to  the  gloom  of  paralyzing  fear 
at  the  bottom  of  the  trough,  that 
follows  the  bieak.  that  we  should  de- 
vote our  efforts  of  education  and  co- 
operation. The  arrow  'A'  points  to 
the  place  where  the  information  that 
I  have  outlined  as  desirable  would 
help  us  to  put  on  brakes.  Business 
now  will  not  listen  to  warnings  ut- 
tered at  'A'— things  are  too  good,  the 
boom  will  go  on  forever.  So  the  next 
best  thing  is  to  apply  the  same  kind 
of  Information,  at  the  point  where 
the  other  arrow  points  to  'B,'  when 
we  are  buried  in  gloom,  and  business 
feels  as  if  the  bottom  had  fallen  out 
of  creation.    Then  is  the  time  to  have 


correct  estlnutes  of  the  courae  ef 
sales  and  prices,  and  on  the  baaia  of 
such  estimates  apply  judicious  expan- 
sion of  credit  and  easing:  of  intereat 
rates  with  preferential  loans  for  pro- 
ductive purposes,  for  tbe  undertakinar 
of  withheld  projects.  Then,  when 
business  is  in  a  teachable  frame  of 
mind,  after  bitter  experience,  is  prob- 
ably the  only  time  to  learn,  not  only 
what  to  do  at  'B,'  but  what  to  do 
next  time  at  'A-* 

"But  we  can't  do  anything  effective 
in  the  way  of  cooperative  action  at 
either  point  without  reliable  and  con- 
tinuous information,  and  underlyingr 
that  the  intelligence  that  cornea  fro"T 
an  understanding  of  the  fact  of,  anct 
the  factors  In,  the  business  cycla." 


H.  S.  DENNISON'S  SKETCH 


Representing  a  typical  buainess  cycle.  "A"  is  the  point  where  measures 
ought  to  be  taken  to  prevent  the  extreme  of  inflation.  "B"  is  the  point 
where  wise  and  well-informed  foresight  might  prevent  the  extreme  of  de- 
pression  and  expedite   the   upward   swing. 


Ochber  29 


A  Business  Policy  For  To-day 


By  Mavk  W.  Cresap 

Of  Han.  SL-liaftner  &  M»\% 
The  armistice  of  November  11,  1918. 
ushered  in  a  period  of  gieai  uncer- 
tainty in  business  generally,  which  the 
clothing  business  shared  to  a  very 
marked  degree. 

The  high  prices  produced  by  the 
diversion  of  men  and  materials  to  the 
war  and  by  other  abnormalities  were 
always  referred  to  as  "war  prices," 
and  it  seemed  only  natural  that  the 
end  of  the  war  would  bring  with  it  the 
end  of  "war  prices." 

This  was  the  situation  that  faced 
merchants  in  the  fall  of  1918.  and  they 
met  it  in  two  ways:  Some  stopped 
buying  and  waited  for  the  drop  in 
prices;  some  kept  on  with  the  ordinary  I 


processes  of  ilieir  business  and  were 
i'l  a  position  to  profit  by  the  enormous 
demands  which    19i;j  brougiit  with   it. 

Of  the  two  cias.ses,  those  who  waited 
en  the  expected  fail  in  prices  were 
diverting  theii  attention  from  their 
main  business — the  sellina  of  clothing 
— in  the  hope  of  profiting  by  specula- 
tive changes  in  the  market.  The 
others  concentrated  their  attention  on 
stiling.  turned  their  stock  rapidly,  .ind 
rebought. 

The  yeai  1919  brought  with  it  a 
further  great  price  inflation,  conse- 
quent upon  the  extraordinaiy  demand 
ci rated  by  the  return  to  civilian  life  of 
4.000  000  demobilized  soldiers,  and  by 
the  more  rapid  rise  of  wages  than  of 
prices,  at  least  in  many  quarters.  This 
continued  into  the  early  months  of 
1920. 

On  the  day  after  Easter,  however,  i 
which  fell  on  April  4,  1920,  there  came  ] 
throughout  the  country  a  conspicuous  ' 


furtailment  of  buying.  The  price  Umit 
had  been  reached  and  the  almost 
simultaneous  cessation  of  buying 
which  took  place  in  every  corner  of 
the  country  presented  an  interesting 
phenomenon,  partly  economic,  partly 
psychological,  and  not  wholly  ex- 
plicable. 

Tremendous  Investment  at  Stake 
For  a  period  of  a  month  or  six 
weeiis  there  was  little  activity,  pend- 
ing development.  The  retailer  had  in 
his  store  goods  purchased  for  the 
spring  of  1920,  and  he  had  on  order 
goods  purchased  for  the  fall  of  1920. 
These  two  seasons  represented  the 
highest  prices  ever  known  in  the 
clothing  industry,  and  the  merchant 
had  a  trcmendoua  Investment  at 
atake. 

The  public  refused  to  buy  at  theae 
prices.-  Xo  store  can  go  along  tf^thout 
business — its  expenses  would  eat  It  up 


>> 


i 


» 


92 


THE   BUSINESS   CYCLE 


—and  this  is  doubly  true  where  the 
commodity  sold  is  perishable  or  semi- 
perishable.  Thus  price-cutting  began 
in  an  effort  to  stimulate  business.  It 
became  general  in  May  and  June  and 
continued  almost  without  interruption 
for  about  a  year.  In  many  cases  goods 
were  sold  at  far  less  than  their  re- 
placement value  at  the  time,  but  the 
only  thing  that  could  be  done  was  to 
■ell  and  then  attempt  to  deflate  the 
Vrlce  of  raw  materials  and  the  cost  of 
production  later. 

By  the  end  of  that  year  the  mer- 
chandise bought  at  peak  prices  had 
been  sold  at  one  price  or  another,  the 
price  level  had  changed,  dropping  ap- 
proximately 34  per  cent,  and  the  whole 
Situation  had  become  fairly  stabilized 
at  a  price  range  of  about  1.79  com- 
pared to  the  pre-war  period. 

Some  manufacturers  and  merchants 
went  through  the  period  of  deflation 
with  flying  colors.  Here  again  the 
same  difference  in  viewpoint  which 
was  exhibited  after  the  armistice  was 
apparent.  The  wise  merchant  kept 
on  selling — he  did  not  hold  his  goods 
because  replacement  values  were 
higher  than  the  prices  at  which  he 
*  could  sell  his  holdings.  He  moved  his 
merchandise  at  what  prices  he  could, 
and  kept  up  his  volume;  and  as  a 
result  he  sold  on  the  drop  instead 
of  at  the  very  bottom  and  thus  mini- 
mized his  loss;  in  addition,  he  avoided 
an  increased  pearcentage  of  expense 
by   avoiding   a   dwindling  volume. 

Those  who  took  their  loss  quickly 
are  now  on  a  comfortable  basis;  the 
others  suffered  severely  in  some  cases, 
losing  as  much  in  one  year  as  had 
been  made  in  the  five  preceding  years. 
It  is,  on  the  whole,  surprising  that 
the  mortality  has  not  been  greater, 
but  altogether  it  can  be  said  that  the 
clothing  business  liquidated  in  a 
highly    creditable    manner. 

Protected  Against  Losses 
During  the   period   of   inflation    we 
made  it  our  rule  not  to  engage  in  any 
expansion  without  first  carefully  con- 
sidering the  possible  effect  of  a  sudden 


contraction  of  business.  This  pro- 
tected us  against  too  great  factory  ex- 
pansion and  fixed  charges  which 
might  later  prove  excessive.  We  de- 
pended on  quick  turnover  for  keeping 
down  our  inventories,  with  the  result 
that,  although  we  did  about  twice  as 
much  business  in  1920  as  in  1919,  we 
had  lesg  than  half  as  much  inventory 
after  depreciation  at  the  end  of  1920. 

It  was  our  opinion  that  high-priced 
goods  owned  by  merchants  should  not 
be  carried  out  in  stock  a  moment 
longer  than  necessar-  We  liquidated 
our  own  5tock  on  tiiat  ba^is  and  we 
advised  every  customer  on  our  books 
to  do  the  same.  We  were  not  suc- 
cessful in  getting  them  all  to  do  it, 
but  we  succeeded  nearly  enough,  so 
that  our  credit  losses  for  1921  will  be 
negligible. 

Our  policy  for  1921,  and  that  in- 
cludes the  policy  we  emphatically  in-' 
dorsed  to  our  customers,  was,  after  dis- 
posing of  our  old  goods  and  getting  v  i 
the  new  price  level,  to  meet  the  pubLc 
demand  for  lower  prices  by  operatinfe," 
on  the  closest  possible  basis  and  to 
examine  the  overhead  carefully  from 
month  to  month  in  the  light  of  chang- 
ing conditions  in  order  that  it  might 
quickly  be  adapted  to  fluctuations  in 
volume. 

Many  merchants  continued  to  lose 
money  in  the  early  months  of  1921. 
We  urged  them  to  get  their  business 
as  quickly  as  possible  on  a  paying 
basis  and  stop  the  depletion  of  capital. 
The  reports  from  all  quarters  of  the 
United  States  indicate  that  there  is  t 
very  general  movement  in  that  direc- 
tion. 

Lessons  From  Recent  Experiences 

The  lessons  from  the  experiences  of 
the  critical  years  of  1919,  1920,  and 
1921,  as  we  see  them,  are: 

(1)  That  the  modern  organization 
of  business,  Tvith  its  large  investment 
in  stock  and  heavy  expenses,  makes  it 
necessary  to  keep  business  going;  the 
alternative  is  an  expense  and  deprecia- 
tion that   is   ruinous.     If  business  is 


kept  going  and  the  turnover  be  rapid, 
the  losses  on  the  inventories  on  hand 
at  any  time  will  (be  small  relative 
to  th...  continuous  benefits  accruing. 

A  retail  merchant's  function  is  that 
of  consumer's  agent.  His  job  is  to 
buy,  to  sell  his  goods  rapidly,  ajid  not 
to  U-y  to  play  the  game  of  market 
speculator.  If  he  waits  for  the  market 
to  go  down  before  buying  he  loees 
business;  if  he  Waits  for  the  market  to 
recover  before  selling,  he  loses  business, 
he  risks  a  still  larger  loss— and  his 
expenses  go  on.  The  merchant's  safety 
lies  in  the  quick  turnover  and  rapid 
selling.  If  he  factes  a  loss  the  thing  to 
do  is  to  take  it.  and  take  it  quickly.  In 
this  way  he  lessens  his  depreciation, 
lowers  his  overhead,  and  reduces  the 
cost  of  distHbution. 

(2)  That  every  merchant,  manufact- 
urer, or  retailer  should  know  about 
how  much  business  he  can  successfully 
ao  on  his  capital  and  never  permit 
himself  to  go  beyond  that  limit.  Any 
banker  can    give    abundant  evidence 

of  the  number  of  businosses  which  . 
are  now  suffering  embarrasisment  be- 
cause they  did  not  have  suffltlent  capi- 
tal ti>  finance  themselves  safely.  They 
relied  on  a  continuance  of  the  easy 
times  in  which  they  were  launched,  or 
expanded,  and  the  slowing  up  of  busi- 
ness quickly  made  it  apparent  that 
they  liad  stretched  their  capital  be- 
yond t  he  safety  point.  If  a  merchant 
nnds  his  volume  exceeding  what  his 
capital  can  properly  handle  he  should 
do  one  of  two  things— limit  the  volume 
or  increase  the  capital. 

(3)  That  a  fluctuating  volume  and  a 
risinK  overhead  are  a  verv  treacher- 
ous combination,  and  that  the  statUti- 
cal  end  of  every  business  should  be  so 
organized  as  to  reflect  immediatelv 
true  conditions  and  indicate  trends 

(4)  That  the  average  American  biifi- 
ness  man  is  much  more  honorable  and 
tenacious  of  life  than  he  was  twenty- 
five  years  ago,  and,  considering  the 
severity  of  the  deflation,  there  were 
comparatively  few  attempts  to  com- 
promise indebtedness,  and  an  «x 
fltlures   "™**^'*   number  of  dlshoneet 


October  31 


Running  a  Big  Retail  Store  as  Prices  Decline 


A  brilliant  example  of  the  need  for 
clear  business  thinking  on  the  part 
of  those  who  have  responsibility  for 
the  success  or  failure  of  big  business 
enterprises  is  shown  by  the  recent 
experience  of  one  of  the  largest  of 
New  York's  department  stores.  Inci- 
dentally, the  same  story  shows  a  sad 
proportion  of  business  executives  who 
do  realize  that  there  is  a  principle 
animating  business  progress.  In  this 
case  it  is  one  in  seventy. 

Before  starting  the  story  it  might 
be  well  to  point  out  that  reliable 
statistics  show  that  in  volume  tht? 
movement  of  goods  over  retail  counters 


of  the  country  has  been  larger  to  date 
in  1921  than  for  the  same  period  in 
1920.  These  statistics  taken  by  them- 
selves are  likely  to  be  misleading,  for 
they  would  seem  to  indicate  that  the 
retail  trade  has  been  prosperou 
tlirough  the  depression  which  has  af- 
fected every  other  line.  They  must 
be  read  in  connection  with  other  fig- 
ures, showing  that  in  value  the  move- 
ment has  been  considerably  less. 

The  actual  situation  was  that  the 
retail  trade  of  the  country  came  up 
to  1920  with  huge  inventories  of  high- 
priced  goods  and  was  faced  by  a  fall- 
ing market.     In  other  words,  tor  all 


the  statlctlps  indicating  a  huge  re. 
tail  trade  in '1921  the  retail  business 
this  >'.  ar  has  been  in  just  as  parlous 
a  state  as  «ny  other  line. 

How  This  Man  Works 
Now  for  the  story.    The  chief  per- 
son concerned  is  the  managing  head 
of   the   store.    It   is   his  own   modftst 
wish  that  his  name  be  n\t  dIsclo«?d,' 
On    a*    upper   floor    of   theV  store    he 
has  a  large  ofHce  facing  a  buey  street. 
There   is  an  expensive  carpet  on  the 
floor    of    the    office    and    there    are 
two      expensive      desks      and      sav- 
tive  occupies  the  office  in  solitary  state 
era]     expensive    chairs.    The    exeoui 


1 


THE    BUSINESS   CYCLE 


23 


\^  m,  f 


k 


r      f' 


He  smokes  pretty  constantly  and 
spends  a  good  deal  of  time  walking 
around  the  room  chewing  the  end 
of  a  cigar.  Some  more  of  his  time 
is  spent  beforo  one  of  the  windows, 
his  feet  spiead  apart,  his  hands  under 
his  coat  tails,  looking  out  on  the  busy 
street.  Once  a  week  there  is  a  meet- 
ing of  the  department  executives  and 
buyers,  at  which  the  managing  head 
listens  to  reports  and  opinions  and  re- 
ceives advice — also  gives  advice.  At 
other  times  the  managing  head  visits 
thie  various  departments  and  has  little 
conversations  with  their  heads.  But 
the  impression  one  receives  is  that 
most  of  his  time  is  spent  wearing  out 
the  expensive  carpet  in  his  large  of- 
fice. 

"Your  business  ha.s  come  thi-ough 
this  depression  in  such  splendid  shape," 
I  said,  "that  it  would  be  extremely 
interesting  to  know  how  you  have 
done  it." 

"Is  the  depression  over?"  the  man- 
ager asked. 

"Well,  what  do  you  think?" 

"I  think,"  he  replied,  "that  the  pros- 
pects are  for  the  upturn.  We  are 
doing  an  excellent  seasonal  business 
now,  and  I  look  for  business  to  con- 
tinue good  through  the  winter  and  get 
better  as  we  approach  the  spring." 

"We  seem  to  agree  on  that.  Now, 
will  you  tell  me  what  it  was  that  made 
you  think  a  depression  was  coming 
and  what  steps  you  took  to  meet  it?" 

Foresight  in  1919 

The  managtr  assumed  a  thoughtful 
expression. 

"It  was  back  a-s  Car  ns  l'U9.'  he 
said,  "thai  I  decided  piicc?  had  to 
come  down.  They  wore  awa>  too  high, 
you  know,  following  tlie  war-lime 
boom.  And  when  prices  go  up  they 
have  to  «.omc  down.  That  i.'-.  if  they 
go  too  far  up. 

"Lote  of  people  talk  about  normal 
prices  and  normal  business,  meaning 
the  bu.sines"s  iind  pri'  c.«  of  1914.  But 
you've  got  to  remember  that  there  i-s 
a  normal  increase  of  busines.'--  and  rise 
in  prices.  I  ligure  the  business  in- 
rrease  at  aliuut  10  per  cent  a  \ear 
with  us.  which  bring  us  at  this  time 
up  to  about  CO  or  70  per  icnt  above 
our  1914  level,  and  the  rise  in  price* 
that  would  have  taken  place  since 
1914,  leaving  the  war  out  of  considera- 
tion, at  about  25  per  cent. 

"So,  I  figured  our  1919  business  on 
that   basis,   and   it    was    evident    that 


prices  were  inflated  and  lousiness  was 
inflated.  We  had  to  figure  on  lower 
prices  and  a  falling  off  in  business. 
In  addition,  there  were  conditions  in 
Europe  to  be  taken  into  consideration. 
Europe  was  in  a  bad  wav  and  was 
going  to  be  worse.  We  couldn't  es- 
cape the  reaction  from  European  con- 
ditions. That  would  bring  our  prices 
still  lower  and  make  our  business 
still  worse. 

"There  wasn't  any  way  to  say  ex- 
actly when  we  would  be  hit,  but  that 
we  would  be  hit  was  as  certain  as 
death  and  taxes.  But  I  couldn't  con- 
vince iny  department  executives  and 
buyers  of  It.  We  have  about  seventy 
of  them  in  this  establishment  and 
they  all  thought  me  getting  too  old  and 
conservative.  There  wasn't  one  of 
them  I  could  convince  I  was  right. 
j  "They  said  the  war  had  Put  punch 
and  pep  into  business  and  boosted 
everything  up  to  higher  levels,  where 
it  was  going  to  stay.  They  said  the 
boom  was  going  to  last  for  years, 
there  was  no  end  in  sight.  And  the 
salesmen  who  came  in  here  were  al- 
ways boosting  that  game.  They 
were  all  the  time  warning  our  buyers 
that  they  couldn't  promise  to  fill  or- 
deis  at  any  specified  time. 

'•  "Order  all  you  want,"  they  would 
.say.  'and  then  double  it.  You  won't 
get  more  than  half  what  you  order, 
any  way.  much  or  little.  We're 
stacked  up  .so  far  ahead  with  orders 
that  we  never  pretend  to  fill  more  than 
50  per  cent  of  an  order.' 

"Then  our  buyers  would  tell  me 
about  it  and  say,  'Look  at  that.  The 
country  never  .saw  such  a  boom.  You 
cant  go  wrong.' 

"liut  We  kept  out  uiders  down,  just 
the  same,  and  1  noticed  that  they 
were  alway.s  filled  to  about  110  per 
cent.  It  didn't  look  so  sood  to  me. 
But  then,  I'm  olii  and  con.sorv.itive, 
3nd  I  cotildn't  make  our  buyers  sec  it. 

••Tlioy  saw  it  in  the  spring  of  1920, 
though.  1  went  away  for  about  a 
month  at  that  time,  and  when  I  got 
back,  i  found  thcs'  iiad  all  i  onie 
/round  to  my  vlow.  We  .started  a 
campaign  of  cutting  prices,  and  selling 
then.  lAickily,  wo  didn't  have  a  big 
ovcistock.  But  what  we  had  we  put 
on  the  tounter.s  and  took  our  loss.  In 
a  short  time  we  had  cleaned  out 
$1,000,000  from  our  inventories. 

"We  didn't  stop  buying.  We  bought 
right  along — but  on!y  what  we  need- 


ed— and  kept  our  stock  replenished  on 
a  falling  market.  And  we  made  up  in 
profits  on  the  new  goods  what  we  lost 
on  the  high'-priced  stock  and  made 
money  on  the  whole  transaction.  We 
are  still  continuing  that  policy. 

"But  we  couldn't  have  done  it  if 
we  had  loaded  up  with  a  huge  high- 
priced  inventory  in  1919  and  the  early 
part  of  1920.  I  don't  look  so  old  and 
conservative  to  a  lot  of  these  fellow.s 
now  as  I  did  two  years  ago." 

"I  suppose  to  make  the  overhead 
balance  with  the  falling  prices,  you 
had  to  cut  wages  and  salaries  all 
around?" 

Did  Not  Cut  Wages 

"No,"  he  replied.  "We  haven't  rut 
a  penny.  I  am  one  of  those  who  be- 
lieve retail  trade  wages  and  salarifs 
always  were  too  low.  We  put  pay  up 
to  meet  the  increased  cost  of  living 
during  the  war  and  we  are  going  to 
keep  it  up.  We  have  met  the  in- 
creased overhead  in  a  different  way. 
We  have  done  a  lot  of  scientific  work 
here  in  the  last  two  or  three  years 
and  what  we  are  doing  is  getting  in- 
creased eflSciency.  By  doing  that  w«» 
are  keeping  up  pay.  keeping  up  in- 
surance, keeping  up  pensions,  and 
we  haven't  got  any  increased  over- 
head. You  might  put  it  that  we  cut 
the  overhead  by  not  having  to  put 
on  four  or  five  hundred  extra  em- 
ployees every  little  while  to  take  care 
of  the  seasonal  rush.  Increased 
efficiency  among  our  regular  fore? 
handles  the  seasonal  rush  better  than 
a   temporary   increase   in   force." 

"And  you  think  the  general  out- 
look  is  good?'" 

"I  believe  in  .\merica.  I  believe  In 
the  future  of  this  country.  When  de- 
flation i.-;  finished — and  I  think  it  is 
about  over  with  now — I  believe  we 
aro  going  to  swing  into  a  period  of 
prosperity  again.  I  think  it  is  under 
way  now  and  \\  c  will  get  back  to  nor- 
mal; not  the  normal  of  1914,  but  1914 
with  the  natural  increase  of  seven 
years  added.  .\nd  after  we  have 
reached  that  point  we  will  strike  out 
for  the  1920  level. 

"But  you  have  got  to  remember  that 
when  prices  get  too  high,  when  busi- 
ness goes  beyond  the  regular  yearly 
progression,  there  has  got  to  be  de- 
flation, with  falling  prices  and  slack- 
ening business.  Then,  when  the  hot 
air  is  let  out  of  the  balloon  it  begins 
to  inflate  again."        _  ^  ^^ 


THE    BUSINESS    CYCLE 


November  L 


Uncertainty  Causes 

Up-and-Downs  of  Business  Cycle 

*Torecasts   Come   True    Only    When   People  Do    Not 

Accept  Them 


r — "^ ^ 

Psychology  Rules  Securities 

Markets  as  It  Does  Industry 


A  wen-knoum  tanking  expert  in 
this  article  points  to  the  particular 
things  which  busitiess  men  should 
observe  in  the  guidance  of  their 
business  action. 


J 


By  John  E.  Rovensky 

Vice-President  National  Bank  of  Commtice 

Belief — human  psycnology — is  the 
animating:  fore©  of  the  business  cycle. 
Men  always  believe  that  prices  are 
either  going  up  or  going  down,  and 
act  on  their  belief.  So  long  as  the 
community  believes  prices  are  going 
higher,  business  is  brisk.  Conversely, 
when  the  belief  prevails  that  prices- 
are  going  to  be  lower,  business  is 
poor.  Between  these  two  states  of 
mind,  and  the  periods  that  they  pro- 
duce, we  have  usually  a  "twilight 
sone"  of  hesitation — the  twilight 
period  at  the  base  of  declining  prices 
being  usually  longer  than  at  the  top 
of  an  advancing  market,  when  men 
are  apt  quickly  to  change  their  posi- 
tion to  "get  from  under. 

Prof.  Kemmerei  in  his  articles  in 
the  ttX&aXng  Post's  business  scries 
ivisely  said: 

"The  business  cycle  thrives  on  un- 
certainty." 

Th*  existence  of  the  business  cyc'lR 
has  heen  recognized  as  an  established 
<act  for  a  great  many  years  and  busi- 
ness men  have  operated  in  the  face  of 
BUch  cycles  ever  since  the '  modern 
Industrial  organization  became  well  es- 
tablished. In  America  we  have  had 
major  business  cycles,  culminating  in 
crises  or  panics,  about  every  twenty 
years  since  the  earlier  years  of  the 
nineteenth  century.  Severe  crises  oc- 
curred in  1837.  1857,  1S73,  1893,  and 
1907.  Minor  cycles  iptervening  be- 
tween these  dates  have  culminated  in 
•omewhat  lesser  crises,  and  every  few 
years  we  have  witnessed  i>eriods  of 
prosperity  followed  in  order  by  crisis, 
liquidation,  depression,  and  revival. 

But  to  admit  the  periodical  recur- 
rence of  the  business  cycle  is  one 
thing;  to  attempt  to  forecast  it  is  quite 
another.  A  forecast,  if  accepted  aJ 
correct  by  a  substantial  part  of  the 
community,  tends  to  prevent  (or 
ameliorate  in  proportion  to  the  num- 


99 


bcr  of  people  who  acted  xipon  it)  the 
happening  of  the  event  predicted. 

"Forecasts  True  if   Not  Accepted" 

In  other  words,  a  forecast  can  only 
come  true  to  the  degree  that  it  is  iiot 
accepted  by  the  people.  I  deem  it  im- 
portant to  Doint  this  out  for  the  reason 
that  occasion.illv  atlempts  have  been 
made  by  writers  to  rpduce  the  fore- 
casting of  the  business  cycle  to  a 
statistical  formula,  which  may  miislead 
one  to  believe  that  such  predictions! 
can  be  made  with  tho  practical  cer- 
tainty  of  a  weatb.er  forecast. 

If  we  bear  in  mind  the  purely 
psychological  cause  of  the  bu.sincss 
cycle  we  .siiall  better  undc-rytand  its 
vagaries  and  shnll  ajipreciato  how  ini- 
por;.=;ible  it  is  to  draw  a  chart  or  other 
guide  ba.scd  on  statistics  tnat  would 
forecast  the  movements  of  the  busi- 
ness cycl?  with  precision. 

Reai  Value  of  Warnings 

The  valuo  of  such  gualer  is  confined, 
I  in   my  judgment,   to  pointing   out    in 
,  boom  times  to  the  bu.siness  communi". } 
I  the     iieights     to     wliich     op!  ,.Ksm     i;i 
j  carrying  it,  and  thus  by  dieting  the 
I  upward  moveme'.t  temper  tho  effects 
j  of   the    inevitable    reaction.      Likewise 
i  in   period.s   of  deprei-sion   .such   guide: 
i  are  valuable  in  brmging  about  a  feci- 
1  inp;  that  the  downwaid  movement  ha.s 
'  gone  f:ir  enough  and  that  nttter  time., 
I  are  ahead.     In  a  wonl,  if  the  busincaa 
I  community  were  to  closely  study  th 
I  operatioii.;   of   the    bu.sincss   cycle   the 
result    would    be    a    shortening   of   its 
diameter — iho    swinj,.;    from    one    ex- 
I  treme   to   the   other   would   not   be  as 
j  great  as  at  jires-oat.    In  a  I'topiun  coni- 
I  murity    peopled    by    precise    thinking 
•  machine.^  devoid  of  s*ntiincnt  the  busi# 
I  ncss  cycle  coulJ  not  operate. 
i      How    can    we    gau^e    <his    uncertain 
j  factor   of    'uinian    p.sycholos;y   in   ord-r 
j  that    Wo    niay    form    an    oi  inion   as    to 
how  mr -n   lurtiier   the  p-  .sent   move- 
ment of  the  cycle  will   continue?  Nat- 
urally   tliero    are    many    symptoms    of 
varying   reliability   in   various   lines   of 
busines.s.     But  tho  one  that  most  con- 
cretely and  reliably  cxnr^sses  the  feel- 
ing   ...    the   commimiiy    Ir.    Hales.     Tho 
untillod    lonna!.:e    re.oort    of   the    IT.    fi. 
Steel  Corpcr.-^.T.on  is  an  e'.oqucnt  argu- 
ment on  the  stt-ol  .situation,  and  if  .surh 
figures  were  ohtainH)»le  in  all  the  lead- 
intr  lines  of  Ivj.siness  they  would   fur- 
nish an  excel If-nt  guifio  j  s  to  the  tem- 
perament of  the  business  community. 

When   Ratio  of  Increase  Fails 

It  must  be   borne  in   mind  that  the 

approach   tu   the   crtst   of   an   upward 

movement  is   reachel     /hiJe  sales  are 

still  increaung.  The  lirst  ..arning  sign 


is  when  the  ratio  of  increase  Jn  sales 
begins  to  recline.  Sales  may  continue 
to  increase  but  the  driving  force  be- 
hind the  upward  movement  is  losing 
its  power.  The  ratio  of  increase  tapers 
off  until  the  twilight  zone  is  reached 
and  then  comes  the  decline.  The  same 
rule  holiis  good  at  the  bottom  of  a 
downward  movement — a  period  such 
as  we  have  been  peissing  through. 

The  lunitations  of  this  article  com- 
pel me  to  confine  myself  to  the  part 
played  in  the  business  cycle  by  the 
commercial  community.  But  the  psy- 
chologic al  element  is  just  as  potent  in 
the  security  and  other  markets.  Obvi- 
ously other  symptoms  evidence  tho 
movements  in  other  fields.  The  vol- 
ume of  undigested  securities,  Interest 
nite.s,  etc.,  indicates  here  the  trend  of 
events.  And  finally  the  busineiis  cycle 
of  the  entire  community  is  a  complex 
of  the  movements  in  all  the  variou.n 
lines  of  human  endeavor — ^sometime"? 
the  movement  in  one  offsets  the  move- 
ment ill  another,  though  usually  they 
tend  to  accentuate  one  another. 

Upward  Trend  Now  Starting 

The  present  business  cycle  appears 
to  have  reached  the  bottom  of  the  de- 
pression and  to  have  started  slowly  on 
thf^  upward  trend.  The  curve  of  this 
upward  movement — the  probable 
length  of  the  period  before  a  pro- 
nounced improvement  is  attained — it  is 
impo.ssiWle  to  forecast.  There  are 
many  d«-ttnitc  indications  of  improve- 
ment, hut  there  still  exist  some  very 
uncertain  factors.  Frozen  loans,  whtcn 
loomed  so  large  \(\  the  aggregate  nina 
months  igo,  no  longer  comstltute  a 
.serious  obstacle  to  our  business  re- 
covery. 

The  uttward  movement  will  probably 
be  irregular  for  the  next  few  months. 
As  to  when  recovery  shall  have  got 
complett  ly  under  way,  it  is  now  im- 
possible to  say.  The  chief  factor  is 
the  psythcogy  of  the  business  com- 
munit>  Wh'^never  the  majority  oC 
our  people  regain  confidence  in  ths 
future  of  prices  the  recovery  will  be- 
come more  npid.  Important  obstacles 
to  the  establishment  of  such  confi- 
dence still  partly  obstruct  the  way. 
Among  these  obstructing  factors  i.i 
the  uncertai.nty  arising  in  part  frorn 
the  unequal  rates  at  which  price  antj 
wage  adjustments  have  taken  place  in 
the  various  branches  of  industry.  Th« 
uncertainty  of  the  European  situation 
also  acts  powerfully  to  retard  the  re-^ 
turn  of  conMience. 


THE    BUSINESS    CYCLE 


November  2 


} » 


^'     %    ^ 


<■■ 


f- 


^•> 


How  One  Exporter  Foresaw 

Business  Decline  Abroad 


r 


To-day's  article  in  the  Evening 
Post  business  news  series  shows 
the  vigilant  study  of  varying  con- 
ditions in  every  country  required 
for  successful  handling  of  trade  and 
credit  in  war-  and  peace-time. 


Theodore  T.  Malleson 

Export  Manager  Royal  Typewriter  Company 
(An  interview  by  Fred  B.  Pitney) 

"The  exporter  who  doesn't  figure 
In  advance  on  what  trade  condition  i» 
are  likely  to  be  will  very  soon  find 
himself  in  a  bad  hole,"  said  Theodo.e 
T.  Malleson.  export  manager  for  the 
Royal  Typewriter  Company.  "Fore- 
casting business  conditions  is  the  life 
of  the  exporter.  I  don't  know  but 
that  it  is  more  important  for  the  ex- 
porter than  it  is  for  the  man  engaged 
in  purely  domestic  business,  and  1 
am  perfectly  sure  it  is  much  mors 
complicated. 

"Now,  what  do  you  want  to  know? 
Anything  I  can  tell  you  I  will.  Shoot." 
"Suppose  you  begin  by  explaining 
the  special  importance  to  the  export.^ r 
of  forecasting  conditions  and  why  it  s 
more  complicated  for  him." 

"Business,"  said  Mr.  Malleson,  "is  a 
series  of  swings  or  ups  and  downs. 
Over  a  period  of  years  you  will  have 
prosperity,  followed  by  hard  times,  and 
then  prosperity  again.  Business  al- 
ways goes  on  in  just  that  way.  it 
goes  on  in  that  way  in  every  country 
in  the  world,  but  hard  times  or  pro.s- 
perity  doesn't  hit  every  country  at  the 
same  time.  And  that  is  what  com- 
plicates things  for  the  exporter.  The 
man  in  domestic  trade  has  to  forecast 
for  America,  but  the  exporter  ha.s  to 
forecast  for  every  country  where  ho 
does  business  and  for  each  one  sep- 
arately. 

••The  reason  it  is  of  special  impor- 
tance to  the  .exporter  is  that  he  car- 
ries his  clients  on  long-time  credits, 
and  foreign  collections  are  always  more 
difficult  and  take  longer  than  domes- 
tic collections.  If  the  exporter  does 
not  forecast  conditions  correctly  he  is 
very  likely  to  find  himself  +.i<^d  up  with 
a  lot  of  long-time  credits  that  will  be 
frozen  credits  when  they  lall  due.  He 
can't  depend  on  his  clients  to  look 
ahead  for  him  and  order  only  what 
they  can  handle.  He  has  got  to  do  it 
for  them  and  keep  their  order.s  down, 
often  when  they  want  to  splash. 

Take  the  Case  of  Spain 

"I    will    give    you    an    example    in 

Spain.    Spain  had  during  the  war  the 

greatest  period  of  pro.sperlty  she  has 

Icnown  in  four  hundred  years.    Every- 


thing  was  humming.  The  Spanish  peo- 
ple never  had  so  much  money.  But 
when  the  armistice  wa.s  signed  it  was 
plain  to  us  that  Spain  was  going  to 
have  a  reaction  and  especially  tha* 
our  business  in  Spain  waa  going  to 
have  a  setback. 

'•There  was  a  gre^t  deal  of  political 
unrest  in  Spain  and  the  Anarchists 
and  Communists  and  Bol.sheviki  be- 
gan to  get  much  more  active  imme- 
diately after  the  armistice.  That  was 
one  sign  that  there  was  going  to  be 
a  business  reaction.  Another  was  the 
self-evident  fact  th.'it  the  countries 
that  had  been  at  war,  where  the 
Spanish  merchants  had  found  their 
Wff  'markets,  would  begin  to  produce 
f<<i-  themselves  once  more.  And  there 
was  the  particular  evid-nce  for  us 
that  Germany  was  on  tiptoe  to  flood 
the  Spanish  market  with  cheap  goods. 
"Our  agents  in  Spain  couldn't  see 
It.  Business  was  still  going  big  with 
them.  They  thought  it  w.as  going  to 
keep  up  forever.  But  we  had  a 
broader  view  from  tho  outside  than 
they  had.  When  one  of  our  Spanish 
agents  would  send  us  an  order  for 
300  or  500  machines,  we  would  ask 
them  if  they  di.ln't  think  they  could 
get  alon.g  with  half  that  numl>er.  We 
Kept  their  orders  down.  We  wouldn't 
let  them  buy. 

"NVithin  three  months  Spain  was  in 
the  beginning  of  a  business  depre.ssion 
that  kept  getting  worse.  She  has  just 
)^a.ssed  throush  about  fifteen  months 
of  absolute  stagnation.  But  we  were 
not  caught  by  it.  We  saw  what  was 
coming,  liquidated  our  .stocks  in  Spain, 
kept  our  accounts  down,  and  came 
through  in  good  shap'-. 

"Things  are  beginning  to  pick  up 
again  in  Spain.  The  Anarchists  have 
had  to  let  the  factories  ojien  and  go 
back  to  work  themselves  to  keep  from 
•starving.  Barcelona  s  opening  up. 
That  i.s  the  centre  of  the  big  industrial 
district  of  Spain.  We  are  going  into 
Sj)ain  and  selling  again.  The  upturn 
has  begun  theie." 

Margin  of   Safety 

"How  long  a  look  ahi-ad  does  an  o::-  j 
porter  have  to  Jiave?" 

"We  feel  that  we  need  in  our  busi- 
ness from  throe  to  six  months.  Three 
montlis  is  the  minimum.  We  have  to 
h.ive  time  to  turn  around  before  a 
change  makes  it.'^elf  f.  It.  We  have  to 
liquidate  before  a  dej>r..ssion  and  we 
have  to  be  r-idy  to  supply  the  market 
when  the  re\  ival  bejiiiis.'" 
^  "SupiRise  you  tell  about  genera! 
Euroi)e:in  conditions,  what  you  looked 
for  after  tlie  war,  aim  the  steps  you 
took." 

'•<»i  coui.se,   thci  v   ^p.cial   con- 

ditions aff«-eiinK  oyj  i.usinehs.  But 
that  i.s  true  of  every  hui^ine.s.s.  Every 
business  man  must  form  his  own  judg- 
ment on  conditions  as  he  .sees  them. 

"We  looked  over  the  situation  after 
the  war  and  we  saw  that  the  Kuro- 
pean    (JovernmenLs    were     loaded    uy 


with  machines  that  they  would  want 
to  get  rid  of.  That  meant  that  ws 
would  have  the  competition  of  a  lot 
of  cheap  machines  that  would  go  into 
the  hands  of  small  dealers  and  deal- 
ers in  second-hand  machines  and  be 
sold  for  extremely  low  prices.  There 
was  another  comphcation.  As  soon 
as  the  war  was  over  the  European 
Governments  began  putting  on  th« 
taxes.  There  was  a  lot  of  talk  about 
it  first,  but  the  talk  was  enough  to 
scare  the  people  and  stop  buying.  It 
so  happened  that  after  the  taxes  were 
levied  there  was  a  period  of  extrava- 
gant buying.  People  bought  every- 
thing they  saw.  whether  the-'  needed  it 
or  not,  because  if  they  didn't  spend 
their  money,  they  would  have  to  pay 
it  to  the  Government  in  taxes.  But 
that  period  of  extravagance  didn'*  last 
long.  The  high  taxes  very  shortly  had 
the  anticipated  effect  of  stopping  buy- 
ing. 

"Altogether,  we  felt  the  outlook  was 
bad  for  European  business.  So  w« 
started  in  to  liquidate  our  European 
accounts.  We  cut  prices  and  sold  our 
stocks  out  below  cost  wherever  it  was 
necessary.  We  felt  it  was  better  to 
take  a  loss  than  to  be  tied  up  with 
a  long  list  of  frozen  credits.  We  are 
about  liquidated  now  and  ready  for 
the  new  business  that  is  showing 
signs  of  developing. 


Europe  Going  Back  to  Work 
"The  best  sign  is  that  Europe  Is 
going  back  to  work.  For  a  time  the 
people  of  Europe  ^elt  that  the  situa- 
tion was  hopeless.  They  couldn't  se« 
any  use  of  working  and  they  Just 
waited  for  something  to  happen.  But 
they  have  begun  to  realize  that  they 
have  got  to  go  to  work  and  business 
is  starting  up  again. 

"France  is  humming.  The  Govern- 
ment is  doing  a  lot  of  work.  The 
railroads  are  building  and  there  is 
extraordinary  activity  in  the  devas- 
tated regions.  The  Government  re- 
ports show  only  15.000  or  18.000  people 
idle  in  all  Fiance. 

"England  has  had  a  lot  of  special 
conditions  to  contend  with,  both  polit- 
ical and  labor  conditions,  and  there  is 
a  tremendous  amount  of  unemploy- 
ment there.  But  England  is  gettinff 
back  to  work.  Belgium  is  probably 
the  most  prosperous  and  industrious 
of  all  the  European  countries.  Ger- 
many has  a  surface  appearance  of 
great  prosperity,  but  I  look  for  a  biff 
smash  there,  the  biggest  she  has 
ever  seen.  Sweden  has  got  a  ble 
smash  coming.  She  hasn't  begun  her 
readjustment  yet,  and  the  people  are 
in  a  riot  of  spending.  But  they  are 
going  tt)  get  it  and  get  it  hard.  Nor- 
way depends  almost  entire'y  on  ship- 
ping, and  she  is  suffering  badly.  The 
banks  are  carrying  many  of  the  big- 
gest   Norwegian    concerns    to    keep 


\ 


}f 


■^ --''■' .^ 


f/ 


28 


THE   BUSINESS   CYCLE 


them  from  going  to  the  wall.  Den- 
mark is  better  off  because  she  Is 
largely  an  agricultural  country,  but 
outside  of  agricurture  her  business  is 
dead.  In  Turkey  there  is  lots  of 
activity,  but  very  little  money.  It  is 
a  case  of  barter.  Everybody  is  trad- 
ing merchandise,  and  very  little  cash 
changes  hands. 

Exporter   Has   Complex  Problem 

••y.  ;i  5^rp  how  it  is  with  the  exporter. 
Every  couniry  whaie  he  does  business 


presents  its  own  problem.  The  ex- 
porter has  to  look  ahead  at  world  con- 
ditions   and  he   has   to    look   at   each 

country  as  a  special  problem- 

'  But  he  has  to  look  ahead.  He  has 
to  forecast  conditions.  As  1  explained 
in  the  case  of  Spain,  it  isn't  only  a 
question  of  selling  goods.  We  could 
have  sold  hundreds  of  thousands  of 
dollars'  worth  of  orders  in  Spain,  but 
if  we  had  we  should  have  been  tied 
up  with  just  that  much  of  uncollectible 
debts  that  we  would  have  had  to  carry 


for  two  years  or  more.  That  wouldn't 
be  good  business. 

"Now  we  have  our  foreign  business 
liquidated,  we  can  see  the  revival  com- 
ing, and  we  can  put  our„factone3  to 
work  on  what  we  can  foresee  will  be 
a  steady,  continuous  output  for  our 
export  t/ade,  and  we  are  abl<!  to  put 
them  to  work  at  a  time  when  the  work 
i.s  needed  here  and  when  we  can  buy 
our  mateiials  to  advantage. 

"That  is  what  you  get  by  looking 
ahead.  The  look  ahead  is  the  diiter- 
ence  between  success  and  failur*." 


November  3 


\j^ 


Charting  a  Big  Business 

Through  a  Price  Decline 


1^-      "  V 


\<  n 


An  Interview  by  Fred  B.  Pitney 

"When  high  prices  and  a  large  de- 
mand for  goods,  which  constitute 
prosperity,  are  based  on  an  accumu- 
lation of  permanent  capital  and  the 
spending  power  which  comes  from  na- 
tional thrift,  prosperity  has  a  solid 
foundation  and  may,  ba-rring  catas- 
trophies,  be  expected  to  continue  for 
a  considerable  time,"  said  E.  M.  HexT. 
"But  when  prices  and  demand  are 
based  on  a  debacle  of  permanent  capi- 
tal and  a  period  of  universal  destruc- 
tion, then  a  crash  is  inevitable  and 
the  business  man's  problem  is  wha: 
to  do  to  weather  the  storm." 

Mr.  Herr  is  president  of  the  West- 
inghouse  Electric  and  -\Ianulactuni:g 
Company,  one  of  the  big  industrie.'*  of 
the  country,  and  he  has  brought  it 
successfully  through  the  depression, 
due  to  correct  economic  thinking 
backed  up  by  good  business  manage- 
ment. He  was  describinjj  the  method.s 
the  We.stinghouse  company  took  to 
weather  the  storm. 

"When  I  came  back  in  June,  1920, 
from  a  trip  to  China  and  Japan,"  he 
continued,  "a  general  survey  of  the 
business  situation  showed  me  that 
the  fundamentals  were  unsound.  We 
were  crowded  with  orders,  booked 
a.way  ahead,  our  customers  were 
clamoring  ff)r  their  goods,  we  werr, 
pressing  for  our  raw  materials,  pres**- 
ing  for  machinery  and  new  construc- 
tion, prices  were  high,  and  the  de- 
mand was  enormous.  There  was  ever.v 
evidence  of  the  greatest  boom  the 
country  had  ever  known  and  appar- 
ently no  end  in  siaht. 

"But  when  you  took  your  eyes  off 
your  own  immediate  business  and  had 
a  general  look  around,  you  saw  in  the 
first  place  that  prices  were  far  and 
away  too  high.  Then,  the  whole  thing 
was  too  feverish.  There  was  too  much 
excitement,  too  much  demand  for  goods 
at  any  price,  with  too  little  thought  of 
how  the  load  of  high  prices  was  to  be 
distributed  and  carried  in  the  future 
when  the  fever  had  subsided.  The 
whole  proposition  was  too  speculative. 

The  Foundation  Bad 

"Then    you    looked    underneath    at 


V 


what  was  the  foundation  for  these 
high  prices  and  enormous  demand. 
And  you  saw  that  the  structure  was 
built  on  the  destruction  of  permanent 
capital.  The  world  had  been  through 
a  period  of  six  years  of  destruction  of 
buildings,  factories,  machinery,  houses, 
agriculture,  all  that  represents  perma- 
nent capital.  Europe  was  wiped  out 
industrially.  And  the  world  was  try- 
ing to  replace  by  magic  what  had  been 
lost   and    destroyed. 

"It  can't  be  done  by  magic.  Capital 
and  industry  grow  by  thrift  and  hard 
work.  The  prosperity  of  1919  and  1920 
was  a  false  prosperity.  The  foundation 
was  not  there  and  ihe  crash  was  in- 
evitable. ><  «  •  iAnfiflHi 

"I  liegan  to  try  to  pull  in  and  hold 
down.  But  it  was  only  possible  in  a 
very  .small  degree.  We  couldn't  turn 
down  our  customers  and  refuse  orders. 
We  had  to  meet  the  demand  and  to  do 
that  we  had  to  go  into  the  market  and 
buy  at  current  prices. 

"The  result  was  that  we  carried  big 
inventories  and  because  of  our  orders 
booked  ahead  we  had  to  buy  ahead. 
The  first  tremors  came  in  October  and 
November,  1920.  I  closed  down  harder 
than  ever  f.icri.  We  bought  nothimr 
that  was  not  absolutely  essential.  Still 
it  was  not  possible  to  clean  out  the 
inventories.  We  had  the  orders  ahead 
and  we  had  to  piepared  to  fill  them. 
We  had  to  buy  ahead. 

"When  the  crash  <'ame  we  stopped 
all  buying  of  all  kinds.  The  material 
that  we  had  houglit  ahead  we  accept- 
ed, but  we  didn't  buy  any  more.  Lots 
of  people  cancelled  their  orders,  but 
it  didn't  seem  to  me  to  be  fair.  TIih 
men  I  was  dealing  with  were  in  th-:; 
.same  position  we  wero.  If  I  had  can- 
celled my  orders  they  would  have  had 
to  cancel,  and  if  thp  movement  had 
spread  we  might  have  had  a  panlo 
like  1907. 

Held  Down  on  Buying 
"No,  we  accepted  what  we  had 
Ijouglit  ahead,  wrote  down  our  inven- 
tories, and  filled  our  orders.  We  were 
fortunate  in  having  orders  for  our 
goods  booked  ahead  and  very  few  of 
our  customers  cancelled  on  us.  Those 
who  were  in  a  bad  position  we  com- 
promised with,  making  terms  that 
were  fair  to  them  and  fair  to  us. 


r     s 


"What  w^e  did  was  to  hold  down 
on  buying  as  hard  as  we  possibly 
could  m  anticipation  of  the  crash 
which  we  saw  was  inevitable.  By  do- 
ing this  we  were  not  able  to  come  to 
the  crash  free  from  high-piiced  in- 
ventories, but  we  had  held  our  inven- 
tories down  to  the  limit  and  we  didn't 
have  to  lake  the  loss  we  must  have 
taken  if  we  had  bought  with  llie  sam« 
freedom  m  the  last  half  of  1»"0  that 
we  did  in  the  first  lialf.  Everybody 
had  to  take  a  loss,  but  we  saw  the 
crash  coming  and  kept  our  loss  down, 
That   was  the  story." 

"In  managing  youi-  busine.s8  do  you 
find  that  l>usiness  statistics  and  chart;* 
are  of  \alue  to  youV 

'Oh,  i  es.  We  make  a  great  deal  of 
use  of  such  material.  We  have  a  sta- 
tistical department  and  an  exfensive 
clipping  bureau  and  we  take  several 
statistical  services.  We  chart  price 
trends,  pioduction  and  the  monev  mar- 
ket, and  keep  a  close  watch  on  these 
things  all  the  time.  All  of  these  ser- 
vices, I  harts,  and  tables  ar«>  passed 
around  among  our  executives  to  keep 
them  constantly  up  to  date  on  condi- 
tions and  help  them  to  form  their 
judgments.  The  busine.ss  man  can't 
manage  liis  affairs  solely  on  hunches. 
He  must  have  the  facts.  Business  is 
too  comi)licated  a  matter  for  any  man 
to  try  to  get  along  without  the  latest 
and  jnosi  complete  infonnation.    - 

■"Business  runs  in  a  regular  order. 
The  lenKlh  of  the  periods  of  prosper- 
ity or  depression  may  vary,  liut  the 
order  doesn't.  Depression  follow.-* 
prosperity  when  prices  get  too  high 
and  inflation  has  gone  too  fai.  There 
must  be  detlation  then,  which  is  to  say 
depression.  And  out  of  depressioii 
prosperity  grows  again  as  a  re.sult  of 
lowered  prices  and  accumulation  of 
buying  power  through  thrift  and  hard 
work. 

"I  think  we  hive  come  now  to  the 
turn  from  depression  towards  pros- 
perity, but  1  think  the  revival  will  be 
slow.  We  won't  have  a  boom  next 
year  and  it  is  lucky  for  us  that  we 
won't.  It  we  were  to  have  another  big 
boom  in  the  ne!xt  two  years,  we  would 
have  a  crash  afterwards  to  which  thi.s 
one  would  be  child's  play.  But  if  we 
have  a  gradual  building  of  piowperity. 
we  can  look  for  a  sustained  period  ot 
good  times."  , 


THE   BUSINESS   CYCLE 


\\ 


y 


i 


k 


27 


November  4 


Lessons  Learned  by 

Du  Pont  Co.  In  Recent  Slump 


The  experience  of  a  great  com- 
pany whose  statisticians  foresaw 
the  crash,  but  whose  sales,  produc- 
tion, and  purchasing  departments 
saw  only  an  everlasting   boom. 


An  Interview  by  Fred  B.  Pitney 

The  business  depression  from  which 
the  country  has  been  suffering  has 
taught  the  Du  Pont  company  two  les- 
sons. The  first  lesson  is  the  value  of 
economic  research  and  a  comprehen- 
sion of  the  fundamental  principles  of 
the  business  cycle  as  an  aid  to  busi- 
ness management.  The  second  lesson 
is  the  necessity  for  a  single  executive 
head  as  the  final  authority  in  big 
business  management.  Committee 
management   is  all   verj-^  well,   in   the 

Du  Pont  company's  experience,  in 
boom  times,  but  it  falls  down  badly  in 
the  crisis — or  more  exactly,  when  the 
crisi£  is  approaching. 

An  official  of  the  General  Motors 
Corporation,  a  Du  Pont  subsidiary,  toid 
the  story. 

"I  became  interested  in  the  bearing 
of  economic  research  on  business  man- 
agement in  1917,"  he  said.  "I  was 
w-ith  the  Du  Pont  company  at  that 
time.  We  put  in  a  research  btureau  and 
began  to  gather  and  study  statistics 
on  the  business  situation.  Pretty  soon 
we  enlarged  thp  bureau  and  began  to 
prepare  and  distribute  to  the  execu- 
tives a  monthly  summary  of  general 
business  conditfons  with  a  brief  fore- 
cast. 

"We  came  up  to  the  boom  times  of 
1919  and  1920.  Our  research  bureau 
was  constantly  and  insistently  warn- 
ing us  that  the  break  was  coming. 
But  our  executives  couldn't  soe  it.  We 
had  three  big  factors  to  contend  with 
that  it  was  almost  impossible  to  con- 
trol. 

"There  was  the  sales  department. 
It  was  booking  orders  away  abeaa  ami 
It  couldn't  see  any  reason  to  think  a 
crash  was  on  the  way  when  orders 
were  so  far  ahead  of  production. 

"Then  there  was  the  production  de- 
partment that  couldn't  keep  up  with 
orders^and  was  constantly  calling  for 
new  construction  and  more  material 
to  work  with.  It  couldn't  see  a  crash 
\mder  way  when  it  couldn't  keep  up 
with  the  demands  made  on  it. 

"And  there  was  the  purchasing  de- 
partment, that  saw  prices  for  materials 
steadily  rising  and  could  readily  fore- 
see the  time  when  the  margin  of 
profit  would  be  wiped  out,  if  it  didn't 
lay  In  big  stocks  ahead.  They 
couldn't  see  a  crash  in  the  face  of 
rising    prices. 

Statisticians   Saw  Trouble  Ahead 

"The  statistical  department  could 
see  the  crisis  coaling.     By  conoaring 


present  conditions  with  past  booms 
and  crises  it  could  see  that  the  time 
was  rapidly  approaching  when  the 
boom  w^ould  break  with  a  big  crash. 
It  warned  us  insistently. 

"But  we  were  up  against  committee 
management.  Each  committee  had  its 
own  point  of  view.  Sales  insisted  on 
the  orders  ahead.  Purchasing  couldn't 
see  anything  but  rising  prices. 

"A  few  of  us  could  get  the  lesson 
taught  by  the  research  bureau,  but 
we  were  outvoted  by  the  optimists. 
And  there  was  no  one  man  at  the  head 
who  could  take  all  the  factoi-s  and 
coordinate  them  and  issue  final  orders. 
We  who  could  see  the  crash  coming 
were  able  to  exerci.se  some  control, 
but  not  enough.  We  kept  down  stocks 
and  inventories  to  a  certain  extent, 
but  we  couldn't  do  anything  Uke 
enough.  One  executive  at  the  head 
could  have  imposed  his  will  on  all  the 
subordinate  executives,  and  whereas 
we  did  very  well,  considering,  we  didn't 
make  a  record  to  write  songs  about. 

Abolished  Committee  Management 

"But  we  learned  a  lot.  We  learned 
the  value  of  economic  research  and 
we  have  enlarged  our  statistical  work. 
And  we  changed  the  Du  Pont  organi- 
zation and  did  away  with  committee 
management. 

"That  experience  teaches  another 
thing,"  he  continued,  "and  that  is  that 
business  can  never  be  made  a  thing 
of  purely  mathematical  calculation, 
very  fallible  factor  of  human  judg- 
ment. You  may  have  the  most  com- 
plete statistics  that  can  be  gathered, 
and  in  the  end  it  comes  down  to  the 
judgment  of  the  man  who  reads  the 
statistics. 

''The  difficulty  we  are  finding  now 
i.s  how  to  apply  the  results  of  eco- 
n;>m!c  research  to  the  management  of 
a  i^articular  business.  What  we  have 
now  gives  us  the  general  trend  of  the 
business  of  the  country.  We  can  form 
an  e.stlma(e  of  where  the  country  is 
In  the  business  cycle.  What  we  need 
to  know  is  where  our  own  particu- 
lar busine.cs  and  our  own  company 
stand.  We  need  to  tit-  our  general 
view  to  a  particular  forecast. 

"We  need  an  eslimite  of  probable 
sales  over  a  period  oT  time:  an  esti- 
mate of  colleetions,  whether  credit 
must  be  long  or  can  be  short;  an 
estimate  of  our  cash  position  with  re- 
lation to  the  collections  estimate;  an 
e.'^timate  of  costs,  prices  of  raw  mate- 
rials; and  an  estimate  of  production, 
costs,  and  quantity.  All  this  must  be 
not  for  the  present,  but  as  a  forecast. 

Only  Incomplete  Statistics  Available 
"So  far,  we  have  not  found  whe>-e 
we  are  going  to  get  the  figures  for 
those  estimates,  the  statistics.  We 
can  see  whore  some  of  them  are  to 
come  from  incompletely.  But  wi'Ti 
the   best   we   can  do,   it   will    still  re-  ' 


main  in  the  end  a  matter  of  the 
human  factor,  the  question  of  th» 
Judgment  of  the  man  who  reads  tb« 
statistics. 

"AJl  that  I  feel  I  can  say  at  present 
is  that  economic  research  gives  a  basa 
on  which  to  rest  a  judgment.  And 
economic  research  has  succeeded  as 
yet  in  giving  us  only  the  figures  need- 
ed to  indicate  the  position  of  th« 
country  as  a  whole  in  the  business 
cycle.  We  are  still  groping  for  thA 
information  needed  to  be  able  to  mak^ 
a  sufficiently  accurate  forecast  fo) 
a  particular  business. 

"Take  the  case  of  the  automobile 
business.  For  all  of  our  economic  re- 
searches I  don't  think  General  Motors 
did  any  better  or  any  worse  than  th« 
average  automobile  concern.  We  all 
got  hit. 

"Right  up  to  the  end  of  1920  the 
outlook  was  all  for  a  continuance  of 
the  boom.  Statistics  proved  that  there 
was  going  to  be  a  break.  Warning 
after  warning  was  issued  of  what  was 
coming.  But  in  spite  of  all  the  warn- 
ings the  ordere  for  automobiles  at  the 
high  prices  continued  to  pile  up.  No 
one  heeded  the  warnings  and  the  coun- 
try continued  to  plan  to  buy  automo- 
biles and  to  order  them  long  in  ad- 
vance. 

"We  couldn't  ignore  the  orders.  We 
couldn't  refuse  business  and  draw  out 
of  the  market.  We  might  as  well 
have  liquidated  our  business  and 
wound  up  our  affairs.  The  only  thing 
we  could  do  was  to  prepare  to  fill  the 
orders,  buying  as  little  in  advance  as 
possible.  But  being  so  far  behind  on 
production,  we  had  to  buy  ahead. 

"All  those  problems  are  part  of 
business  management,  as  well  as 
studying  the  statistics  on  the  general 
situation  of  the  country.  Every  busi- 
ness is  not  only  a  part  of  the  whole 
but  individual. 

Big    Inventories   Remained 

"The  result  was  that  the  automobile 
business  of  the  country  came  up  to 
the  crash  with  huge,  high-priced  in- 
ventories and  overflowing  order  books. 
The  crash  was  followed  by  a  general 

cancellation  of  orders,  but  the  inven- 
tories remained. 

"And  there  you  are.  Economic  re- 
search showed  us  that  a  crash  was  in- 
evitable. The  special  problems  of  our 
own  business  involved  us  in  it.  We 
suffered  neither  more  nor  less  than  the 
avei-age  of  the  industry.  Whether  we 
can  ever  get  the  specialized  informa- 
tion that  will  enable  us  to  keep  out  of 
such  entanglements  "I  don't  know. 
What  I  do  know  is  that  we  can  see  its 
value,  if  it  can  be  found,  and  we  are 
searching  for  it,  and  whether  we  can 
get  that  special  information  or  not, 
we  know  that  it  is  invaluable  to  us  to 
know  the  general  trend  of  busHess 
and  the  position  of  the  luntry  ae  a 
whole  in  the  business  cy^ie." 


4'y  1 


? 


THE   BUSINESS   CYCLE 


28 


THE    BUSINESS    CYCLE 


November  5  ■   • 

^^Guessworkers"  Do  Not 

Survive  Business  Crisis 


Preparation  for  business  life 
should  include  study  of  the 
Business  Cycle  as  a  compul- 
sory feature. 

Widespread  understanding  would 
help  to  modify  extremes  of  in- 
flation and  depression. 


Sam  A.   Lewisohn 

Of  Adolph  liBwiaolm  h  Son*,   Mioinx  •nd  Id- 
TMtmenta. 

(Interviewed  by  Fred  B.  Pitney) 

"One  of  the  most  surprising  things 
about  the  business  cycle,"  said  Sam  A. 
Lewisohn  of  A^dolph  Lewisohn  &  Sons, 
"is  how  few  people  know  anythinit 
about  it.  And  yet  it  is  a  constantly 
rceurrinr  phenomenon  of  the  business 
world.  Though  many  of  the  underly- 
ing causes  of  cycles  are  obscure,  th« 
general  course  of  events  that  tak^ 
place  Is  comparatively  simple  and 
would  be  easily  understood  by  the  av- 
erage businc-ss  man. 

"There  Is  nothing  rtmarkabl*'  about 
a  period  of  br.siness  d  .'pression  Pros- 
perous or  boom  times  are  not  the  nor- 
mal condition  of  affairs,  with  depres- 
sion or  hard  times  ao  unforeseeable 
calamity.  The  law  that  depression  fol- 
lows prosperity  would  seem  from  past 
experience  to  be  almost  as  inevitable 
In  its  action  as  the  law  of  gravity. 

"The  really  remarkable  thing  about 
hard  times  is  that  so  few  business  men 
realize  in  periods  of  prosperity  that 
hard  times  are  bound  to  come  and 
make  provision  against  them.  And 
that  very  lack  of  realization  make<) 
the  hard  times  haxder,  makes  the  re- 
covery more  diflScult  and  makes  them 
last  longer  and  the  recovery  slower. 

"Yet  these  conditions  could  be  so 
much  mitigated  if  the  average  business 
man  only  had  a  little  knowledge  of 
economic  principles.  We  ought  to 
teach  economics,  and  especially  a 
knowledge  of  the  Business  Cycle,  in 
our  schools  as  a  compulsory  study. 
Instead  of,  as  we  do,  sending  our 
average  young  man  out  to  enter  the 
flfht  for  Mfe  with  practically  no  prep- 
aration for  what  he  is  going  into. 

"The  great  captains  of  industry,  the 
successful  managers  of  big  business, 
do,  to  a  certain  extent,  at  any  rate, 
understand  the  principles  and  theory 


unconsciously,  they  conduct  their  busi- 
nesses on  sound  principles.  That  Is 
what  makes  them  successful.  But  the 
average  business  man  does  his  busi- 
ness by  guessing  from  day  to  day.  He 
doesn't  think  of  the  underlying  prin- 
ciples or  see  things  from  a  long-range 
point  of  view,  and  many  of  them  would 
laugh  at  you  if  you  told  them  there 
was  an  underlying  principle 

Understanding  Woulcf  Modify  Curve 
Curve 

"I  don't  mean  to  say  that  a  general 
understanding  of  the  Business  Cycle 
would  eliminate  depression  and  keep 
the  country  on  a  general  level  of  con- 
tinuous prosperity.  We  will,  perhaps, 
have  to  wait  for  the  millennium  for 
that.    But  1  do  mean  thai  a  wider  dif- 


fund    for  insurance  against    the   hard 
times  to  come. 

Experience  of  the  Gue$s%vorkers 

"The  temperamental  business  man. 
who  works  by  hunch  and  by  guess, 
finds  himself,  as  he  euphemistically 
expresses  it,  overextended  when  the 
crisis  comes  at  the  end  of  prosperity, 
and  he  goes  to  the  wall.  But  the  wise 
business  man.  who  understands  the 
principle  of  the  Business  Cycle  and 
acts  on  it,  finds  himself  not  only  pre- 
pared for  the  period  of  depreasion,  but 
ready  in  those  hard  and  dull  timaa. 
when  prices  are  low,  to  expand  his 
facilities,  do  his  new  construction  work 
when  building  is  cheap,  and  contract 
far  iri  advance  at  low  prices  for  his 
stock-s  of  goods.  He  will  not  only 
weather  the  la^i^  time.,  but  he  will 


fusion  of  economic  knowltc'ge  would  be  pi  osperous  above  the  general  level 
make  the  curves  of  business  less  sharp,  in  good  times,  because  he  has  prepared 
would  keep  the  peak,  perhaps,  from  i  for  prosperity  a«  he  had  previously 
rising  so  high;  would  make  the  high  prepa ted  for  depression, 
level  of  prosperity  last  longer,  and  •'Thai  is  the  advantage  lo  the  indl- 
would  prevent  depression  from  going  vidu>.'l  of  conductine.  his  business  ac- 
to  such  low  levels  and  lasting  so  long.  |  cording  to  a  definite  and  easilry  vndtr- 
"It  is  just  as  w.th  an  over-temper-  j  stood  economic  principle.  The  advan- 
amental  person.  We  ail  have  moods  I  tage  lo  the  community  if  all  busamaas, 
which  make  life  interesting,  but  when  i  or  the  major  pa  i  of  ihe  buainoss,  af 
a  person  gets  too  liish  and  then  too  {the  country  could  be  conducted  undar 
depressed    we    ronsider    the    condition  !  thai    piinriple   is    too   obvious   to   naaU 


pathological. 

"In  Europe  economic  know'edge  is 
more  widespread  than  here  and  in  Eu- 
rope the  average  Business  Cycle  ranges 
through  a  period  of  from  seven  to  ten 
years,  while  here  the  period  varies 
from  three  to  ten  years.  Doubtless  there 
are  temperannental  differences  that 
account  for  this  in  part,  but  the  point 
I  want  to  make  is  tnat  a  knowledge  of 
economic  principles  would  enable  us  to 
exercise  a  wise  control  over  our  tem- 
peramental flights,  instead  of  running 
wild. 

"The  wise  busmess  man  who  is 
famihar  with  the  prin(;iple  of  the 
Business  Cycle  knows  that  depression 
must  inevitably  follow  prosperity,  and 
within  a  eompai-atlvely  biief  period,  a 
few  years  at  the  best.  There  is  a  great 
temptation  to  unlimited  expansion  in 
prosperous  times  to  put  off  the  day  of 
saving  and  economy.  It  is  part  of  our 
national  temperament.  We  are  over- 
sanguine.  But  the  wise  business  man 
looks  forward  in  prosperity  to  the  in- 


of  Uae  Business  Cycle.    Consciously  or  evitable    reaction    and    lays    aside    a 


comment. 

'Now.  I  Jon't  mean  to  say  that  any 
man  can  maUe  an  acc.irate  forecast  of 
just  when  hard  times  will  come  or 
when  prospeiity  uill  return  after  •* 
period  of  depies^sion.  But  he  can  real- 
ize I  nut  both  ant  inevitable.  He  can 
do  Ills  new  construction  in  hard  timc!« 
at  low  prices,  or  he  can  contract  for  it 
tthead  during  periods  of  deprossioc. 
whon  prices  are  low,  and  he  can  con- 
tract for  his  stocks  ahead  during  it- 
pression  periods. 

"I  don't  mean  that  he  can  fore«te 
all  his  wants  But  he  can  foresea  a 
large  part  of  them.  And  by  foreseeing 
them  and  giving  out  his  contracts  dur- 
ing hard  times  he  will  contribute  to 
hasti?nin.'y  the  return  of  prosperity,  he 
will  help  prevent  the  depression  from 
reaching  such  a  low  point,  and  he  will 
help  make  prosperity  last  longer. 

'If  the  average  man,  through  a  little 
study,  will  come  to  underatand  that 
there  is  a  definite  principle  underlying 
the  general  course  of  business  over  a 
period  of  years,  he  will  soon  come  to 
the  further  realization  that  the  combi- 
nation of  his  individual  efforts  with  the 
Individual  efforts  of  thousands  of  other 
busi.iess  men  can  g-o  far  towards  refu* 
!atinK  the  progress  of  the  Businaaa 
Cycla." 


-4i 


-i 


4^ 


i^  Bi   > 


I: 


k  Y- 


Ih 


November  7 

How  a  Big  Toy  Firm  Handled 

Itself  in  Anxious  Times 


J.  Uonel  Cowen 

Pr-^K1iat     Uobe!   Ktnufacturlnx   Co. 
Uattrriewed  by  Fr«d  B.  Pitney) 

Before  the  war  the  American  toy- 
making  business  was  negligible,  and 
since  the  war  it  has  again  had  a  hard 
time.  One  of  the  reasons  for  the 
hard  times  since  the  war  was  the 
mushroom  growth  due  to  war  condi- 
tions, which  put  it  on  no  aohd  founda- 
tion to  meet  the  depression  of  this 
year.  Some  American  toy  makers, 
however,  had  the  vision  a  year  ago 
and  two  years  ago  lo  see  what  was 
on  the  way  for  business,  and  have 
come  through  with  flying  colors.  One 
of  these  was  J.  Lionel  Cowen,  presi- 
dent of  the  Lionel  Manufacturing 
Company. 

Mr.  Cowen,  in  telling  of  the  experi- 
ence of  his  company,  said:  "We  ought 
to  atart  this  story  at  the  beginning, 
which  is  back  in  1913.  Up  to  the  begin- 
ning of  the  war  only  about  1 0  per  cent 
of  the  toys  sold  in  this  country  were 
made  here.  Germany  had  a  monopoly 
of  the  American  toy  trade,  though 
tiiere  w;.s  some  competition  from 
other  countries.  But  Germany  was 
the  chief  source  of  supply. 

"In  1914  American  merchants  were 
still  loaded  up  with  German  to.vs,  but 
in  1915  no  German  toys  came  in  and 
American  toy  makers  got  their  first 
real  chance.  By  1915  the  situation  in 
the  American  toy  trade  had  exactly 
reversed  itself.  For  1915  and  the  next 
three  years  90  per  cent  of  the  toys 
told  here  were  of  home  manufacture. 

"Then  came  the  armistice,  the  re- 
svunption  of  imports,  foreign  compe- 
tition, and  the  business  of  American 
toy  makers  began  to  dwindle  so  that 
this  year  only  about  sixty  per  cent 
•f  the  toys  sold  in  Amerioii  will  be  of 
home  manufacture. 

America  Makes  Better  Toys 

"If  It  were  only  a  question  of  price, 
the  American  toy  manufacturer  would 
be  driven  entirely  out  of  liie  market 
again.  But  the  American  niake»  a 
better  and  stronger  to.v  than  the  for- 
eigner. In  many  cases  he  does  not 
put  quite  so  much  finish  on  his 
toys,  but  where  he  has  the  edme  is 
that  he  puts  stability  into  ihem.  His 
toys  cost  more,  but  the  dealerj*  and 
the  people  have  learned  that  they  get 
more  for  their  money.  So  the  Aineri- 
can  manufacturei'  has  held  a  very  con. 
siderable  pari  of  his  market  by  the 
value  he  gives. 

"Now,  we  come  to  the  bisgesi  blow 
the  American  to.v  maker  had  lo  stand. 
That  was  the  business  depre8.sion  that 
swept  over  the  country  with  such  .start- 
ling suddenness. 

"You  see,  many  toy  makers  figured 
that  they  had  captui*ed  the  American 
market  for  good  and  all.  They  laid 
In  their  stocks  of  material  and  made 


their  manufacturing  plans  on  that  I  am  glad  to  say  that  we  are  comiac 
baais.  So  they  came  up  to  1920  with  up  to  the  end  of  the  year  with  all 
the  biggest  inventories  in  their  history.  |  signs  "-ointing  to  the  turn  of  the  tida 
"Now,  here  was  the  situation  with }  in  business.  By  the  end  of  the  year 
our  company  aa  it  developed  in  1920.   «'e     will     have     equalled     our     IStf 


We  had  every  reason  at  the  t>eginning 
of  1920  to  look  forward  lo  the  biggest 
year  we  had  ever  had.  As  a  matter 
of  fact,  we  did  have  our  biggest  year, 
but  at  the  beginning  of  19S0  it  looked 
as  though  it  was  going  to  be  a  whole 
lot  bigger.  We  were  sold  out  by  the 
end  of  March,  with  orders  still  piling 
up. 

'i\  looked  like  ii  wa.s  up  to  us  to 
double  our  output.  But  it  was  about 
that  time  we  had  the  first  signs  of  the 
storm.  Prices  were  way  up,  then,  you 
remember,  and  1  began  lo  notice  a  ii(- 


record. 

The  upturn  having  begun,  what  la 
going  to  be  your  policy  now?" 

"When  prices  are  dovfn  is  the  time 
to  buy,"  Mr.  Cowen  replfed.  "I  figure 
prices  are  just  about  at  the  bottom 
row.  In  fact.  I  think  they  are  going 
lo  begin  to  go  up.  But  any  one  who 
>"uys  now  will  make  money  on  hln 
purchase?,  no  matter  wheth«»r  prices 
are  not  quite  at  ;iie  bottom  or  wuethc* 
they  have  begun  to  go  up,  because 
they  arp  goinsr  lo  go  up  a  jrood  deal 
more.     So   the  man    who  buys  to-day 


lie  cessation  of  buying  around  l he  i  will  liave  the  edge  ou  the  man  who 
country.  1  don't  mean  that  our  orders  waits  .*  few, months  and  as  a  cona*^ 
fell  off.  but  there  was  a  falling  off  in  queiice  has  to  pay  h.  higbei  price, 
the  retail  trade.  There  began  to  be  -.j^sf  !.,  prove  mv  belief.  I  will  tell 
price  cuttmg.  Then,  you  remember.  <  ,  ou  that  a  tew  duvsago  I  bought  1  O0f 
John  Wanamaker  sprang  his  first   big 


price  slashing  sale.    .\(ter  that,  overall 
parades  were  held  in  several  cities. 

"1  didn't  feel  that  I  needed  any  moie 
signals.  Things  liani  sone  far  enough. 
We  had  reached  t1i«  top  and  were 
ready  to  start  on  the  down  giade.  I 
said,  *We  won't  go  out  for  any  more 
orders.  We  will  be  satisfied  with  what 
we  have.  We  are  Koing  to  have  some 
cancellations  of  order."  already  on  our 
hooks  and    we    will    take   just    enough 


ton.s  of  brase.  I  don''  need  it  to^lay. 
hut  I  will  need  it  next  .vear,  and  I  will 
have  it  very  close  to  the  bottom  of  the 
market,  if  not  exactly  at  the  bottom. 
And  all  yon  need  i»  to  bny  pretty  close 
'<>  the  bottorn.  It  is  mighty  easy  to 
,ver»-oach  yoi-rRe'.r  by  trying  to  grab 
the.  last  penny. 

"I  iook  Lor  much  better  business 
next  year  than  we  have  had  ^hi^  yeai . 
and  I  11  buy  anytjiing  now,  jf  the  price 
right.       Anything 


.  .  ..  ^.        .    '-^    right.      Anythmg    1    am    arong    t« 

new  orders  to  <;over  the  cancellations.'    „eed  in  my  business  next  yea;,  that  is. 


In  this  businesa  we  have  to  btiy 
oui  raw  material  in  advance.  I  had 
a  lot  of  orders  in.  of  course.  I  didn't 
cancel  them.  J  didn't  cancel  an  ordc''. 
Bui  I  made  a  new  arrangement  about 
them.  I  went  to  the  people  I  had 
ordered  from  and  i  said,  'Til  take  ail 
this  stuff  1  have  ordered  from  you.  I 
won't  cancel  ;i  pound.  But  these 
orders  are  for  future  delivery,  and 
you  mii.st  give  uie  the  stuff  at  the 
current  price  on  the  date  of  ship- 
ment.' 

"They  were  moie  than  glad  to 
make  such  an  arrangement.  And 
thai  let  us  oui  of  carrying  big,  high 
priced  iiiveiitories.  We  used  up  every 
poimd  we  had  bought  in  advance  for 
our  19»'0  busine??!.  We  didn't  oversell 
our  market  and  find  ourselves  with 
a  high  petxeutage  ot  cancelled  orders 
after  we  had  the  goods  all  made  up. 
and  we  didn't  have  to  make  enemies 
by  insist in$^  on  ouj  (Mistoiners  taking 
goods  thnt  we  knew  ih^v  couldn't 
.s»}l. 

Feeling  liie  Way  in  1921 
"The  same  policy  baa  brought  us 
through  thix  year  in  splendid  shape. 
We  liyvo  done  ju«(  as  much  business 
this  year  «••<  we  did  in  1320.  and  it  la 
all  done  on  »  sound  basis.  VVt> 
stopped  going  out  after  business  ui 
1920  because  we  felt  anything  more 
would  be  shaky:  it  would  be  an  over- 
load. This  year  we  haven't  tried  to 
crowd  the  market.  We  have  been 
conservative  and  felt  our  way,  and  I 


'The  way  it  looks  to  me,  we  »r* 
leaving  a  little  boom  just  at  present, 
Uui  that  wiU  work  itself  out  bv  the 
end  of  the  year.  Then  we  will  have 
a  lemnorary  recession  that  will  last 
through  Ihe  first  two  or  three  month» 
of  next  year.  In  the  spring  things 
will  open  up  again  and  from  then  on 
wo  will  have  steady  progress  until  in- 
flation once  more  goes  too  far.  whea 
we  will  have  another  depression. 

"We  are  on  the  upturn  now  and  the 
thing  to  do  i»  to  take  advantagre  of 
the  prosperity  that  is  on  the  way  re 
prepare  for  the  .storms  the  future 
holds." 

"Did  yuu  have  to  cut  wages  in  or- 
der to  come  through  the  depresak>n?" 
"1  didn't  have  the  heart  to  4o  it. 
We  thought  it  over  and  came  to  the 
conclusion  we  w^ould  have  to  malce 
a   cut.     We  even  set  the  date.     But 

j  VI  hen   we   came    up   to   the   date   fixed. 

;  we   put    it    off  and   set   another  data. 

j  We    did    that     three    times    and    w« 

j  Itaven'i    cm    wagen    yet  and  don't   in- 
tend to. 

'The  workingman  has  already  loat 
his  overtime  and  that's  about  all  the 
( nt  he  can  !<tar.d.  I..iving  costa  tor 
much  to  take  any  more  away  from 
him.  Yeu  must  remember  that,  in  all 
these  big  amounts  per  week  you  hear 
of  workingroen  getting  in  the  boom 
years  overtime  was  figured  in.  When 
his  overtime  is  cut  off  he  is  pretty 
nearly  cut  in  half  already,  and  T 
haven't  the  heait  to  cut  him  any 
more." 


?■ 


I 


THE   BUBIKGBS   CYCUS 


Business  Needs  Right  Men  on  Job 

Task  Is  to  Find  Leaders  Who  Will  Not  "Flutter" 


By  Matthew  C.   Brush 

leAlftr  TIce-Presldent  of  tb«  Amarican   Inter- 

natloaal  Corperation  and  Prasident 

of  a.  Amsinck  &  Co.,  Inc. 

Interview  by  Fred  B.  Pitney 

Stnuxsers  call  Matthew  C.  Brush 
"Mr.  Brush."  His  friends  call  hlra 
"Matt."  Those  who  -work  for  him  are 
his  friends.  It  Is  part  of  his  theory 
§  and  practice  of  successful  business 
management  that  those  who  work  for 
tlim  shall  In  reality  work  with  him  and 
bt  bis  friends. 

Matthew  Brush  is  a  senior  vice- 
pgpaident  of  the  American  Interna- 
tional Corporation  and  president  of  G. 
Auslnck  &  Co.,  Inc.,  the  latter  as  part 
o*  his  A.  I.  C.  job.  He  has  In  his 
day  punched  the  time  clock  in  the 
shops  of  one  steam  railroad,  and  after- 
wards became  vice-president  and  tlien 
president  of  another.  He  has  been 
president  of  the  Boston  Elevated  Rail- 
road, and  he  was  the  man  who  led  the 
Hogr  Island  team  that  produced  122 
flrat-class  ships. 

As  this  greatest  single  enterprise 
in  the  history  of  shipbuilding  neared 
completion  of  its  programme,  Mr. 
Brush  devoted  more  and  more  of  his 
time  to  the  other  A.  I.  C.  interests, 
Including  the  Amsinck  organization, 
which  for  nearly  three-quarters  of  a 
century  has  been  engaged  in  trading 
with  Central  and  South  America.  This 
change  from  a  definite  engineering 
problem  of  large-scale  production  to 
the  commercial  field  was  made  in  the 
spring  of  this  year,  after  depression 
had  struck  its  heavy  blow  at  business. 
Hence  his  statement,  "I  didn't  come 
into  this  thing  until  after  it  was  all 
over.  I  can't  tell  you  how  business 
foresaw  or  failed  to  forsee  the  crisis, 
prepared  or  failed  to  prepare  to  meet 
it,  and  came  through  or  failed  to 
oome  through  the  depression.  I 
wasn't  in  it.  I  am  the  repair  man. 
Now  .what  do  you  want  me  to  talk 
•Ibout?" 

Only,  Mr.  Brush  put  it  much  more 
picturesquely  than  it  i.s  related  here. 
He  admitted  us  into  his  friendship  and 
talked  to  us  as  "Matt"  Brush.  "Ex- 
cuse my  langruage,"  he  said.  "I  was 
brought  up  in  a  roundhouse." 

"We  like  it,"  we  replied.  '"We  were 
brought  up  in  a  hard-rock  mine.  You 
open  up  possibilities.  We  won't  get 
history  from  you.  We  will  get  action. 
Tell  us  what  you  are  going  to  do." 

The  Task  Is  to  Find  Men 


f 


•"As  I  see  this  thing,"  he  said,  "the 


Job  is  reorganization,  finding  the  right 
men  for  the  w^ork  to  be  done." 

He  picked  up  a  card  from  his  desk 
and  laid  it  in  the  palm  of  his  hand. 
Then  he  turned  his  hand  so  that  the 
card  was  In  a  perpendicular  jwsition 
and  moved  his  hand  rapidly  across  the 
desk.  Pressure  held  the  card  against 
his  hand  so  that  it  did  not  fall. 

"In  the  boom  years."  he  explained, 
"lots  of  men  came  to  the  front  and 
were  pushed  ahead  by  the  pressure 
of  the  business  behind  them.  They 
didn't  make  the  business.  The  business 
made  them." 

He  swept  the  card  across  the  table 
again,  but  his  hand  stopped  short  half 
way,  and  the  card  fluttered  to  the 
desk. 

"W.ien  business  went  on  the 
rocks,"  he  continued,  ''those  men 
dropped.  They  weren't  big  enough 
for  the  jobs.  They  couldn't  hold 
their  places  without  the  pressure  be- 
hind them.  • 

"The  answer  Is  that  business  needs 
a  liquidation  of  men  as  well  as  a 
liquidation  of  credits.  If  you  get  the 
right  men  on  the  job  the  credits  will 
be  liquidated. 

"You  have  got  to  remember  that 
in  business  the  pergonal  equation  is 
a  tremendously  important  factor. 
Business  is  not  a  mathematical  prob- 
lem, but  the  judgment  of  men. 

Not  Only  Knov/ledge,   but  Courage 

"Take  this  question  of  statistics  and 
economic  research.  I  don't  want  to 
minimize  their  importance.  They  are 
of  great  importance  and  great  help  to 
the  business  man  who  knows  how  to 
read  thorn  and  use  them.  The  danger 
is  that  they  will  scatter  your  thoughts 
over  too  wide  a  field,  when  what  you 
need  is  to  concentrate  on  a  specific 
problem.  Then,  after  you  liave  got 
the  message  they  carry,  you  must 
have  the  courage  to  act  on  it. 

"I'll  give  you  an  example.  There's 
an  old  chap  over  here  in  a  certain 
staple  business.  He  bought  hi.** 
goods  at  21  cents.  They  began  to  go 
down.  He  saw  they  were  going  lower 
and  sold  at  17  cents  and  took  his  loss. 
Later  on,  when  the  goods  began  to  go 
up  again,  he  bought  in  at  9  cents  and 
sold  at  15  cents.  On  the  whole  transac. 
tion  he  made  a  nice  profit. 

"There  was  another  man  who  bought 
at  21  cents.  The  prices  began  to  go 
down  and  he  saw  that  they  were  go- 
ing to  keep  on  going  down.  The  situ- 
ation was  perfectly  clear  to  him;   no 


possibility  of  a  doubt.  But  he  dWnt 
have  the  courage  to  sell  and  take  hiH 
loss  and  get  in  again.  He  held  on 
until  he  had  to  sell  at  3  cents,  and 
then  he  couldn't  get  in  again 

"Economic  research  is  extremely 
valuable,  but  you  must  be  able  t« 
apply  its  results  to  your  particular 
problem  and  have  the  courage  to  act 
on  what  it  teaches. 

Responsibility  of  Ultimate  Head 

"When  it  comes  to  msmaging  a  par., 
ticular  business,  I  don't  believe  in 
either  the  committee  form  or  in  tint 
single  executive  head.  I  believe  in  a 
combination  of  the  two,  but  I  prefer 
council  to  committee.  The  two  word* 
may  mean  the  same  thing,  but  they 
don't  carry  the  same  meaning  to  me. 

"My  idea  is  an  executive  head  who 
takes  the  ultimate  responsibility  aQ^ 
makes  the  final  decision,  but  wh» 
makes  the  decision  after  consultation 
with  hU?  council,  which  should  be  com. 
posed  of  the  chiefs  of  the  principal 
bureauji  and  departments  in  the  busi' 
ness.  ^Yhen  I  was  president  of  th« 
Boston  hnevated  I  considered  that  I 
was  prr*Jonally  responsible  for  every 
accident  that  occurred  on  the  road,  be- 
cause the  choice  of  the  heads  of  de» 
partments  was  my  choice,  and  it  was 
my  business  to  pick  men  who  would 
choose  the  proper  subordinates.  On 
the  other  hand,  we  never  made  an  im- 
portant  decision  that  was  not  thrashed 
out,  and  often  fought  over  bitterly,  in 
the  cojincil.  After  we  had  fought  it 
out,  the  final  decision  was  with  me. 
We  Uh'd  to  convince  every  rnan  on 
the  council  and  have  the  decision 
unanimous,  but  if  it  was  not  unani- 
mous, if  some  fellow  h^ld  out,  even 
if  it  was  the  man  whose  work  was 
affected  most  by  the  decision,  he  had 
to  give  his  loj-ai  cooperation  in  carry- 
ing our  the  decision.  Thai  was  an 
invariHhIe  rule. 

Loyalty  in  Carrying  Out  Decisions 

"Down    at   Hog    Island   at    the    first 

meeting  after  the  council  was  formed 

the  first  paragraph  on  the  minut* 
books  says: 

After  the  freest  and  most 
frank  discussion,  unth  opportunity 
for  each  and  every  man  directly 
or  indirectly  concerned  to  erpreaa 
his  opiniin  or  judgment  on  any 
matter  or  policy  or  detail  of  opera- 
tion or  construction,  the  tU^nisio-n 
must  be  rendered  by  the  responsible 
executive  head,  and  this  iieciaion 
havinff  once  been  determintid  upon 
the  offcers  and  any  otherg  con- 
cerned shall  loyally  carry  it  out, 
even  though,  it  he  against  their 
oicn  judgment,  until  condilions  to 
their  Knowledge  have  in  any  way, 
shape,  or  m^anner  changed  which 
in  their  judgment  may  ])Ossibly 
change  the  executive's  deciai»n,  at 


ii 


<l 


'ii 


^    Mr  ir 


f      w 


I 


THE    BUSINESS   CYCLE 


which  time   it   shall  not  only   be 
their  privilege   but  their  duty  to 
again  open  up  ttie  questiorti. 
"We  are  going  to  adopt  that  reso- 
lution    at    the    first    meeting    of     the 
council  of  Amsinck  &  Co.,  and  we  are 
goini*   to   run   this   business   on    that 
l>rinclple.     My  first  job  is  to  pick  the 
conncll,  and  then  I  have  to  sell  my- 
self to  them  so  that  I  will  get  their 
loyal '  codperation,  and  they  will  come 
here  to  my  office  and  fight  me  to  the 


last  ditch  on  any  proposition  they 
don't  believe  In.  Bvit  after  the  de- 
cision is  made  they  must  fight  just 
as  hard  to  put  the  proposition  over. 

"Business  management  is  largely  a 
matter  of  picking  men.  If  you  can 
pick  the  right  men  their  combined 
judgment  after  they  have  fought  a 
question  over  will  be  right  ninety- 
nine  times  in  a  hundred. 

"Now.  you  want  me  to  tell  you  what 
I  am  going  to  do.     I  can't  tell  you.    As 


questions  come  up  to  me.  I'm  going 
to  try  to  meet  them  with  the  tighx 
answer.  After  it  is  over.  If  I've  fouafl 
the  right  answer,  I'll  take  all  the 
praise  you  want  to  give  me." 

"On  the  contrary',  Mr.  Brush,  you 
have  told  what  you  are  ffoing  to  do. 
In  your  own  words,  'the  big  thine  1*  i<* 
know  when  to  let  go  and  take  a  fresk 
bite,'  and  as  you  have  described  it.  yom 
are  going  to  take  a  fresh  bite." 

"Well,  leave  it  that  way." 


How  the  Business  Signals  Read  To-day 


This  summary  presents  in  concise  form  the  general  trend  of  opinion  on 
business  conditions  about  the  latter  part  of  October,  11»21.  A  long  lint  of 
bankers  was  asked  to  answer  these  questions: 

(1)  Do  ybu  anticipate  pronounced  improvement  during  the  rest 
of  the  year? 

(2)  If  not,  what  kind  of  business  do  you  anticipate? 
(S)    When   do  you  expect  pronounced   improvement? 

(4)  What   are   considered    the   chief    retarding    influences? 

(5)  How  do  stocks  on  the  shelves  of  retail  merchantfs  compare 
with   normal? 

(«)     When  do  you   expect   credit  conditions  to  return   to  normal? 

(7)  Of  commercial  loans  outstanding  October  l,  approximately 
what  percentage  represented  frozen  credits — that  is,  lenewals  oi  ex- 
tensions of  loans  made  more  than   twelve  months  ago? 

(8)  Approximately  what  percentage  of  frozen  credits?  outstanding 
July  1   remained  unliquidated  on  October  1? 

(9)  What  are  the  prospects  for  further  liquidation  of  frozen 
credits  in  your  district  in  the  near  future? 

Wholesale  and  retail  clothing,  iiai-dware.  and  grocery  merchants  were 
given  this  list: 


(1) 
year? 

m 

<4) 

(5) 


Do  you  anticipate  pronounced   improvement   in   business   thi.s 

If   not.   what    kind  of   business  do   you   anticipate? 

When  do  you  expect  pronounced   improvement? 

Whiit    do    you   consider    the   chief    retarding    infiuonccs' 

How  does  the  value  of  your  merchandise  on   hand  Ociolx^r   1 


compare  m  percentage  with  one  year  aso?     With  two   \eai.s  ago 

(6)     How    does    the   physical    quantity    of    .such    nierehandi,'!»» 
pare  with  one  year  ago?     With  two  yeius  ago? 


t;tjm- 


From    the    telegraphic    replies    as    they    were    originally 
Evening  Post,   the   following  statement  ha.';   been    deduced: 

The  third  part  of  this  series,  as  out' 
lined  in  the  introductory  remark-s. 
gives  the  reading  of  the  business  sig- 
nals as  they  stand  to-day  (about  No- 
vember 1,  1921)  by  the  leading  bank- 
ers and  business  men  of  the  principal 
sections  of  the  country.  What  they 
have  to  say   is  summarized  here. 


piuitt-d    in    the 


In  the  Middle  West 

Ten  bankers  see  no  signs  of  pro- 
nounced improvement  this  year,  bin 
all  look  (for  gradual  improvement. 
Two  think  there  will  be  pronounced 
improvement  in  six  to  nine  months. 
The  others  think  conditions  will  work 
slowly  back  to  prosperity,  but  set  no 
definite  limits. 

In  the  East 
Three  bankers  see  no  signs  of  pro- 
nounced improvement  this  year.     One 
thinks  there  will  be  slow  improvement 


this  year,  and  two  think  that  .slow 
will  grade  up  to  moderate,  while  one 
thinks  the  improvement  will  be 
.spotty.  Two  expect  pronounced  ini- 
provenront  in  the  .seeond  quarter  of 
next  ytai,  while  one  thinks  pro- 
nrunccd  improvement  is  two  years 
away.  The  othoi-  doesnt  expect  a 
chatrse  rrnlil  the  tariff  ;tnd  tax  qire.'*- 
I  tion.><   jiie   disposed   of. 

t  In  the  South 

Six  bankers  rxpect  a  pron<»urrced 
improvement  this  yeai.  thrive  do  not, 
and  one  thinks  the  improvement  will 
he  spotty.  Three  think  there  will  be 
little  change  in  i  ondition.*?  for  tire  re- 
mainder of  the  yea;-,  vvhik  five  expect 
steady  progress.  Two  expect  a  marked 
inrprovement  after-  the  first  of  the  year 
and  two  others,  while  rrot  sK^tting  a 
definite  date,  look  formaiked  improve- 
ment in  the  near  future.     Two  others 


set  the  return  to  prosperity  after  the 
next  crop  and  one  puts  it  a  year  away. 
Three   think  progress   will   be   slow. 

In  the  Northwest 
Four  bankers  do  not  look  for  any 
pronounced  improvement  this  year, 
one  thinks  there  will  be  aome  im- 
provement this  year,  but  not  a  ipreat 
deal,  and  two  expect  poor  business  for 
the  remainder  of  1921.  One  thinScs  tha 
situation  will  be  spotty.  Tiwo  look  for 
a  pronounced  improvement  next 
spring,  and  three  not  until  next  sum- 
mer. 

In  the  West 
Two  bankers  see  no  hope  of  pro* 
nounced  improvement  this  year  but 
all  four  agree  that  there  wHl  be  sraCk 
ual  improvement.  One  puts  pr»> 
nounced  improvemenr  a  year  away 
;^nd  one  places  it  after  the  next  <:t^ 
season. 

On  the  Pacific  Coast 
One  banker  expects  pronounced  Ifl^ 
1  rovemeni  this  year,  fom-  see  no  hope 
foi  this  year-,  but  they  all  look  for  a 
gradual  and  continuing  improvement 
in  I'ondiiions.  and  one  expects  to  see 
a  pronounced  improvement  by  spring. 
Two  do  not  expect  a  pronounced  im- 
provement until  Congress  settles  the 
tariff  and  tax  questions. 

In  Canada 

One    bank    looks   for  a  continuance 

of  depresion  in  Canada  for  another 
}.eai-. 

Ti'.f^e  repojts  from  forty-threa 
banks  scattered  well  over  the  countiT 
shci-v  that  lire  South  is  the  most 
optimistic  section  and  the  Northwest 
sees  thia^js  in  the  darke&t  colors. 
The  tonsensus  for  the  country  is  that 
the  upturn  has  begun,  but  the  South 
is  the  only  section  that  takes  a  reall.v 
cheerful  view  for-  the  remainder  of 
1921.  The  Middle  West  is  perhaps 
the  most  depressed  (outside  of  tlie 
Northwest)  about  the  rest  of  this 
year.  But  the  Middle  West  looks  for- 
ward hoj)efully  to  1922.  Practically  the 
entire  country  looks  to  1922  to  show  a 
marked  return  toward  prosperity.  The 
variations  are  chiefly  as  to  how  eariy 
in  the  year-  the  up-swing  will  be  in 
full  motion.  The  majority  favors  a 
.steady  ratio  of  improvement  through 
the  first  half  of  the  year  with  a 
comfortable  measure  of  prosperity  by 
the  end  of   the  ihii-d  quarter. 


>> 


S^' 


>- 


\  .•   ^^^ 


22 


THE    BUSINESS   CYCLE 


Among  merchants  reports  were  re- 
ceived from  five  wholesale  dry  goods 
firms  In  the  Middle  West,  one  in  the 
South,  and  one  in  the  Northwest. 
They  all  reported  improved  business 
at  present  with  prospects  of  a  steady 
ratio  of  improvement  continuing 
through  the  remainder  of  the  year. 
The  firm  In  the  South  expects  a  com- 
plete recovery  to  normally  prosperous 
conditions  to  be  slow,  while  the  one 
in  the  Northwest  expects  a  pro- 
nounced improvement  by  next  spring. 
The  Middle  Western  firms  see  gradu- 
ally improving  business  until  after  the 
next  crop  season,  when  they  expect 
pronounced  improvement. 

Wholesale  gi'ocery  and  hardware 
firms  were  equally  optimistic.  Re- 
ports were  received  fromUhree  in  the 
hast,  one  in  the  South  and  four  in 
Vie  Middle  West.  AH  reported  pros- 
pects for  steady  if  slow  improvement 
[n  business  for  the  remainder  of  this 
year  and  the  first  months  of  1922. 
Estimates  for  a  reasonable  expecta- 
tion for  a  pronounced  improvement 
varied  from   next  spring  to  next  fall. 

Retail  dealers  take  a  less  cheerful 
view  than  the  wholesalers.  The  field 
surveyed  covers  the  retail  clothing, 
grocery,  and  hardware  business,  five 
concerns  reporting  from  the  Middle 
West,  four  from  the  South,  and  five 
from  the  East.  The  Middle  Western 
firms  look  for  fairly  good  business 
With  gradual  Improvement  during  the 
remainder  of  this  year  and  the  early 
months  of  1922.  But  only  one  fore- 
Bees  a  pronounced  Improvement  by 
■pring.  The  others  think  any  consid- 
erable degree  of  imprqfc'ement  must 
wait  on  the  settlement  of  the  tariff, 


tax,  and  transportation  problems, 
with  railroad  affairs  bulking  large.  In 
the  .South  improvement  is  expected 
to  be  gradual  with  much  depending 
on  next  year's  crops  and  prices.  The 
East  finds  some  increase  in  business 
now  with  i^ro-spects  for  gradual  im- 
provement. Two  firms  expect  good 
business  by  spring,  and  one  expects 
pronounced  improvement  by  next 
summer. 

Bankers  and  merchants  are  thus  in 
agreement  that  the  upturn  has  be- 
gun. There  is  considerable  divergence 
of  opinion  as  to  the  time  when  there 
will  be  pronounced  improvement, 
with  the  South  the  most  optimistic 
section  of  the  country,  and  the  North- 
west the  least  cheerful,  but  there  is 
substantial  agreement  that  there  will 
be  no  sudden  boom  and  that  the  im- 
provement will  be  gradual.  The  aver- 
age would  fall  on  next  summer  as  the 
time  when  the  general  business  of  the 
country  is  most  likely  to  feel  once 
more  the  enlivening  effects  of  a  pros- 
perous era. 

Freight  rates,  tariff,  and  tajfe.s  are 
the  influences  most  widely  considered 
to  be  retarding  the  business  revival. 
After  them  come  wages  and  prices. 
There  i.s  a  general  demand  for  lower 
freight  rates,  lower  wages,  and  low- 
er prices.  In  the  Middle  West,  South, 
and  Northwest  farm  prices  are  given 
an  important  place  as  a  retarding  in- 
fluence. Prosperity  is  not  expected  in 
those  sections  until  the  farmers  can 
get  better  prices  for  their  products. 
In  the  grain  and  cotton  States  the 
European  business  situation  is  held  to 
be  of  particular  importance.  Disarma- 
ment and  prohibition  are  both  nv  n- 
tioned  among  the  retarding  influent  .<;. 
Disarmament    is    desired,    while    pro- 


hibition    is     considered     Inimical   to  -.* 

prosperity.  ^ 

With  few  exceptions  retail  stocka 
are  credited  with  being  depleted 
throughout  the  country.  Estlmatea 
of  the  value  of  retail  stocks,  as  com- 
pared with  a  year  ago,  vary  from  50 
to  90  per  cent.    In  very  few  ceMea  are  J 

they  estimated  as  being  of  equal  value  ^  ' 

with  a  year  ago. 

The  credit  situation  la  apotty,  but 
in  general  it  may  be  said  that  reports 
from  all  sections  show'  Improvement. 
Commercial  credits  are  In  much  bet-  ^ 

ter  position  than  agricultural  credltp.  ~> ) 

With  the  exception  of  the  cotton 
credits  of  the  South  agricultural. cred- 
its are  far  behind  in  liquidation  and 
bankers  generally  expect  liquidation 
of  agricultural  credits  to  be '  a  ^ow 
proi;ess.  -.4  ^ 

The  estimates  of  the  percentaisre  of 
frozen  ci'edits  included  In  the  com- 
mercial loans  outstanding  October  1 
varied  so  widely  that  the  only  way  to 
arrive  at  a  figure  is  to  average  them. 
The     estimates     of     eighteen    ^banks  .4. 

averaged  thirty-nine  per  cent  as  the 
proportion  of  frozen  credits  in  the 
loans  outstanding  October  1.  Arriv- 
ing at  the  figure  in  the  same  way, 
sixty  per  cent  of  the  commercial  loans 
outstanding  July  1  were  still  un- 
liquidated  October   1. 

The  prospects  for  futher  liquidation 
are  considerered  good  as  a  general 
rule,  with  agricultural  loans  again 
lagging  behind  commercial  loans. 
Seveml   estimates   fix   six    months  as  ^ 

the  time  needed  for  full  liquidation  of  T  * 

commercial  loans,  while  the  average 
of  time  considered  necessary  for  the 
liquidation  of  agricultural  IwuM  4ota 
not  exceed  a  year, 


A\ 


1    . 


> 


V 


r      * 


^ 


\ 


V 


f 


Four  Essentials  of  Financial  News 


A. 


.CCURACY,  convenient  arrang-ement,  speed  and  wide  scope — 
these  four  are  the  very  essence  of  financial  reporting.  Are  you  getting 
them  in  your  evening  newspaper? 

Read  the  Evening  Post  and  you  will  get  them  all.  For  years  the 
Evening  Post  has  had  a  reputation  as  a  financial  authority  which  has 
reached  throughout  the  United  States  and  far  beyond. 

That  reputation  is  based  on  accuracy. 

In  many  of  the  brokerage  and  financial  offices  in  New  York  the  bond 
price  tables,  the  Stock  Exchange  and  the  Curb  Market  summaries  of 
the  Evening  Post  are  clipped  and  filed. 

That  is  done  because  they  add  convenient  arrangement  to  absolute 
accuracy. 

The  Evening  Post  is  depended  upon  by  many  in  the  financial  district 
to  bring  them  the  first  full  account  of  the  day's  trends  and  trading. 

»   That  is  because  it  shows  speed.    The  Evening  Post  is  the  first  after- 
noon newspaper  on  the  street  with  complete  "high-low"  c[uotations. 

Let  any  business  man  whose  interests  are  wide  and  whose  invest- 
ments are  diversified  tell  you  what  he  thinks  of  the  Evening  Post's  daily 
financial  news  and  weekly  financial  section.  "Indispensable"  is  the 
word  he's  most  likely  to  use. 

That  is  l)ecause  of  its  scope. 

From  the  great  financial  centre  of  London  there  comes  to  the  Eve- 
ning Post  alone  the  unique  daily  cable  of  Arthur  W.  Kiddy.  One  of 
the  governors  of  the  Bank  of  England  characterized  Mr.  Kiddy  as  "the 
best  informed  man — the  most  dependable"  of  the  financial  writers  of 
London.  ^ 


A\ 


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JIN  3  v/ 1995 


0044247265 


Date  Due 


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END  OF 
TITLE 


